Luxury sparkles in Paris
France’s stockmarket has soared so high that it risks running out of air, says Marc Angrand in Le Monde. The CAC 40 index of bluechips hit a new intraday record of 7,387 points on Thursday last week, surpassing its previous high of January 2022 and finishing the day just below a new record close. Already up 11.5% this year, the Paris bourse is enjoying one of its best starts on record.
The boom rests on robust corporate results, a better European energy outlook and slowing inflation on both sides of the Atlantic. However, the “main fuel” has been China reopening, which has pushed up the value of luxury conglomerates Kering, Hermès, L’Oréal and LVMH (now known collectively as the “KHOL”). Combined, the firms now account for almost onequarter of the CAC 40’s total market capitalisation.
“Luxury stocks are showing the kind of momentum that large technology companies did in the 2021 bull market,” says Julien Ponthus on Bloomberg. LVMH has grown to become Europe’s biggest company by market capitalisation, while Paris now vies with London for the title of the continent’s biggest stockmarket.
Luxury firms have so far had “no difficulty in raising prices and beating inflation”. While higher interest rates have sunk many tech shares, China’s reopening continues to propel luxury higher. Lockdowns saw Chinese consumers deposit RMB17.8trn (£2.15trn) in bank accounts last year. Investors are salivating at the prospect of those savings being channelled into handbags, Champagne, watches and perfume.
With valuations close to historic highs, analysts are concerned that the luxury sector is now too dear. Yet on less than 13 times estimated earnings, the wider French market “still looks relatively cheap”.
A broader boom
It’s not just luxury that is rising, says Bastien Bouchaud in Les Echos. The CAC 40 has changed considerably over the 13 months since its last high. Tech and pharmaceutical firms have fallen back, while the CAC’s two biggest risers have been defence giant Thales and oil major TotalEnergies, up 66% and 32% respectively since the last high in January 2022.
More broadly, European markets have enjoyed strong relief rallies since the autumn, says Frédérique Carrier of RBC Wealth Management. The regional Euro Stoxx 600 index has climbed 21% since its late September low. Yet while investors are pleased that an energy crisis has been avoided, the going will get tougher.
Euro area interest rates look set to peak at 3.5%, a “high level for an economy that had functioned on negative interest rates for eight years”. This will squeeze consumer spending and corporate profits. While European share valuations are still “attractive” for long-term investors, it would be a mistake to “chase the rally”.