European luxury firms rise after China unveils new stimulus package

Investing.com -- Shares in European luxury firms rose on Tuesday after Chinese officials unveiled a slew of planned measures to spur economic growth.

On Tuesday, the People’s Bank of China (PBOC) said it is now set to cut reserve requirements for banks by 50 basis points to unlock more liquidity.

For the ailing property market, the government also said it would reduce mortgage rates for existing loans. Bloomberg reported that the government was planning at least 500 billion yuan ($70.8 billion) of liquidity support for local stocks.

The moves come after the PBOC slashed a short-term repo rate on Monday in a bid to further boost liquidity.

Officials in China are pushing to shore up growth as the domestic economy struggles with persistent disinflation and an extended property market downturn.

Big-name luxury groups were higher in midday European trading following the news. LVMH (EPA:LVMH ), Hermes (EPA:HRMS ) and Burberry (LON:BRBY ) all gained more than 4%, Kering (EPA:PRTP ) had added over 5%, and Christian Dior (EPA:DIOR ) had advanced by 3.9%.

Analysts have flagged that weak consumer demand in China, slower spending by travellers, and an uncertain US economic outlook all present key headwinds to the luxury sector in the second half of the year.

In a note to clients on Friday, analysts at Jefferies said they now estimate "no appreciable improvement" in sales for companies offering high-end goods during the final six months of 2024. Demand was "flattish" in the first half, they also said.

Meanwhile, they anticipate that industry sales will be 3% below recent consensus projections in 2025, citing expected softness in the Asia-Pacific region stemming from sputtering activity in China. The trend is seen offsetting a return to growth in the US and Europe next year.

Notably, luxury giant LVMH, a bellwether for the wider sector, reported slower than anticipated demand in the second quarter in July, with sales in Asia excluding Japan -- a segment which includes China -- slumping by 14%. But the company said it expects to see "easier comps" in the second half, adding that it hopes this will resulting in "stronger growth."

Source: Investing.com