China Stimulus Could Influence LVMH More Than Trading Update

Markets are seeking signs of optimism about China's economic stimulus measures to support Europe's fashion giant Louis Vuitton (LVMH) as the entire luxury goods sector confronts substantial challenges and uncertainties restraining expansion.

The Rise Before The Fall

A couple of weeks ago, luxury stocks saw significant growth along with general optimism following major economic measures announced by Chinese central authorities. Then, the markets had to wait a week with growing nerves, as China was on a national holiday. This typically sees increased spending, like on luxury goods. However, when trading resumed on Tuesday, the mood had changed. Shares based in Hong Kong crashed through the week, with the largest single-day drop since 2008.

In this context, leading luxury company LVMH will provide a trading update on Monday. They are expected to reveal sales figures for the third quarter. Of most interest to investors may be any commentary on potential changes to their outlook in light of the stimulus plan. Also of interest is expectations for performance in the critical quarter covering Christmas and New Year spending. The company has managed to withstand some downturns thanks to resilience in higher-end luxury sales. This allowed modest but positive sales growth in the first half of the year.​

Market Correction or Continued Slide?

Following initial stimulus announcements two weeks ago, analysts now attribute the recent decline in China-focused stocks to a lack of new supporting measures announced by China's Economic Planner. The luxury sector has been particularly impacted, as slower economic growth in China has weakened disposable income in the world's second-largest luxury market. Investors had hoped Chinese authorities would provide further stimulus details last Tuesday after the Golden Week holiday concluded, but none were forthcoming.

Attention now turns to the upcoming weekend as Finance Minister Lan Fo'an has scheduled a press conference for Saturday, which is expected to unveil additional, stronger stimulus steps. This timing precedes China reporting key data like its trade balance on Sunday and third quarter GDP later in the week. Analysts express concern China may fail to achieve its 5% annual economic growth target. For luxury brands such as LVMH, the level of reassurance and confidence generated over the weekend from any new support measures could significantly impact stock price movement more than the company's regular trading update.​

LVMH in Flag Correction, Still

LVMH seems to be recovering after briefly losing the long-running flag pattern it has observed since reaching €900. If the correction pattern has now finished, LVMH could rise above €700 and €760, where it previously faced swing resistance, before heading towards €850 near the upper flag boundary. Otherwise, dropping back below recent lows of €600 could speed up the downward trend towards €535 and potentially €440, which has previously provided strong support.​

Source: SpreadEx / LVMH

Key Takeaways

Investors closely monitor signs of economic stimulus in China and its potential impact on luxury goods sales. Leading luxury company LVMH will provide a trading update next week, and analysts will look for comments on performance and outlook in light of China's stimulus measures.