LVMH spearheaded a surge in luxury stocks across Europe on Thursday, propelled by China's pivotal decision to lift a ban on group tours. This move breathed new life into the prospect of travelers indulging in opulent watches and haute couture.
In the bustling streets of Paris, the maker of coveted Louis Vuitton bags witnessed an impressive 2.6 percent ascent, while Hermès International enjoyed a 2.4 percent gain. L'Oréal SA wasn't far behind, securing an advance of 1.8 percent.
Collectively, these gains translated to a remarkable combined market value escalation of about €20 billion (equivalent to $22 billion). Furthermore, the prospects for Rolex retailer Watches of Switzerland Group Plc grew even shinier as it soared by as much as 5.9 percent, bolstered by its unwavering earnings outlook in a recent trading update.
The heart of this monumental surge lay in China's decision to lift the curtain on group travel to a host of nations, encompassing the US, UK, Australia, South Korea, and Japan. This strategic move holds immense weight as Chinese buyers contribute a substantial 25 percent to European luxury goods sales, encompassing both direct purchases and those made by visiting tourists.
These figures were meticulously calculated by experts at Goldman Sachs Group Inc.
Phase Two: China's Travel Ban Lift Sparks Luxury Resurgence
While group tours to certain European destinations like Switzerland, Italy, Spain, France, Greece, Denmark, Iceland, and Portugal had already received the green light earlier this year, the broader travel ban lift marks a significant shift.
Sanford C. Bernstein analyst Luca Solca underlined the significance by stating, "The ban on group travel opens 'phase two' of Chinese luxury spend in Europe." This, he elaborated, is expected to trigger a resurgence in group travel by the latter half of 2023, revitalizing Chinese spending on luxury goods worldwide.
Following a robust start to the year, luxury stocks faced a wane in recent months due to lackluster Chinese consumer and economic data. However, the bullish sentiment is now infused with optimism as investors eagerly anticipate Beijing's potentially robust stimulus measures to reignite the faltering economy.
As the relaxation of travel restrictions reverberates, it resonates deeply in the global tourism sector. Notably, Europe's travel and leisure subindex experienced a 1 percent uptick, with key players like Air-France KLM soaring by as much as 2.8 percent and TUI AG gaining a commendable 2.4 percent.
The optimistic landscape was further enriched by tangible signs of increased deal activity within the sector. Capri Holdings Ltd shot up in US premarket trading, triggered by reports from the Wall Street Journal hinting at an impending acquisition by Tapestry Inc., the parent company of iconic fashion brands Michael Kors and Versace.