France Stocks Higher at Close of Trade on Tuesday
Stocks in France were higher at the close of trade on Tuesday, with the country’s index rising by 1%. The rise followed a sharp decline on Wall Street, with the benchmark S&P 500 falling more than 5% in the past two weeks. Europe’s stocks were also falling after central banks indicated that they would likely need to raise interest rates further and faster than previously expected. Meanwhile, Japan’s core inflation rate reached its highest level in more than four decades.
LVMH shares surge 22% in the last six months
In the past six months, shares of LVMH Moet Hennessy Louis Vuitton SE, a French luxury goods group, have soared 22%. Its shares are trading at a value of 20 times next year’s earnings. LVMH has a track record for growing total revenue.
The company is one of the world’s largest luxury groups. It owns a portfolio of iconic brands, such as Christian Dior, Louis Vuitton, Burberry, and Hermes. It also controls the entire supply chain of products. LVMH possesses a strong brand image and a strong market share.
However, there have been numerous disruptions over the last few years. For example, Russia’s invasion of Ukraine has slowed Europe’s economic growth. While the U.S. and Europe recovered, higher energy prices have affected European economies. Meanwhile, food prices have skyrocketed in the UK.
Hermes shares up 37%
Hermes International is a France-based company that designs and manufactures luxury goods. Its revenues rose 10.4% in 2018. The company’s margin for recurring operating profit is slightly down, but it maintains a long-term trend.
In the fourth quarter, Hermes reported a total shareholder return of 44%. This is a measure of a stock’s total return, which includes discounted capital raisings and cash dividends.
Hermes has a reputation for being highly efficient and profitable. Its gross margins increased to a record 37% during the second half of the year. It has also deployed new services to drive revenue growth.
The company’s global footprint allows it to survive economic downturns better than its competitors. Hermes’ competitive edge comes from its ultra-premium positioning.
Britain’s stock market has lost its position as Europe’s most-valued
Britain’s stock market has lost its status as Europe’s largest equity market to Paris, according to a Bloomberg report. The London Stock Exchange has a market cap of around $2.821 trillion, compared to Paris’ US$2.823 trillion.
Paris’s market is dominated by luxury powerhouses. Its biggest shareholders are the French government and private investors. These firms are able to boost their share prices by taking advantage of currency movements.
France’s luxury shares have gained this year, thanks to a rebound in demand for French luxury goods from Chinese shoppers. Shares of Louis Vuitton owner LVMH have risen 22%. They are also holding up against a global recession. However, there is much more to the story than just currency.
UK medium sized companies have seen cutbacks in spending and higher costs. Retailers and consumer-oriented firms have been the hardest hit.
Asia-Pacific stocks fell after Japan’s core inflation came in at its highest level in over 40 years
Asian stocks fell on fears that the US Federal Reserve would increase interest rates as well. The global economic outlook had deteriorated, which could limit growth in exports. But a rebound in China may offset weakness elsewhere.
Inflation in most Asian economies is rising due to rising food and energy prices. While core prices in Japan rose a bit more than expected, it remains above the Bank of Japan’s 2% target.
Japan’s yen has depreciated strongly, which has pushed up the cost of imports. As policymakers continue to tame inflation, they are intervening to support the currency. Nonetheless, the depreciation may keep inflation high for a longer period.
Core consumer prices in Japan rose 3.7% in November, the highest rate since December 1981. Japan’s economy will expand 1.7 percent this year and 1.6 percent next year.
Europe stocks fell sharply after central banks indicated that interest rates would likely need to rise further and more quickly than markets previously hoped
The pan-European STOXX Europe 600 Index ended the week 3.28% lower, compared to the previous week. It dropped to its lowest point since December of 2021, but remains above the Federal Reserve’s 2% inflation target.
Aside from inflation, geopolitical risks, emerging market stress, and the possibility of a pandemic resurgence have also contributed to a more volatile financial market environment. These factors, along with deteriorating growth prospects, point to a higher probability of recession for all major western economies.
Energy prices and tightening financial conditions have accelerated the onset of an economic slowdown. This translates into a lower outlook for corporate earnings and debt servicing capacity for firms. Furthermore, a sharper economic slowdown may challenge firms that are already under debt pressure and that operate in less energy-intensive sectors.