The fund manager shows what he needs to change to invest in luxury stocks

A slump in Chinese consumer confidence is holding Sanlam Investments’ Hannah Gooch-Peters back from buying luxury stocks. LVMH.

Speaking to CNBC’s Silvia Amaro, the portfolio manager said he would need a “larger margin of safety” before investing in the world’s largest luxury group.

“A lot of these European companies were getting their growth from Chinese consumers and so when we started seeing missteps in execution… it was almost a perfect storm. L’Oreal and LVMH,” Gooch-Peters said, because the companies were “having very high valuations for the growth they delivered.”

L’Oreal and LVMH shares have fallen about 20% and 10%, respectively, over the past 6 months as fears of Chinese consumer power have weighed on the sector. Including peers Estee Lauder – Gooch-Peters said he also made mistakes in China – and owns Gucci dry they have dropped significantly during the period, as well.

LVMH’s fourth-quarter sales fell 3% year-on-year as revenue in Asia, excluding Japan, fell 16%. The group’s CEO said at the time that Chinese consumer confidence was at a Covid-era low.

“What we want to see is a bit more confidence in Chinese consumers improving,” Gooch-Peters said. “We would need a greater margin of safety to be able to participate in that part of the market before we go there.”

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It’s a stock the portfolio manager likes, though CME Groupone of the largest derivatives markets in the world.

Sanlam Investments bought shares in the company in June last year, citing “very, very good operating margins” and a “fantastic balance sheet”, Gooch Peters said.

He added that he likes the fact that the US-based company’s “cash flow (is) very, very sustainable, very predictable,” and that investors “don’t have to worry” about the cost of servicing debt.

The CME Group has recorded revenue in October and the beginning of the year CEO Terry Duffy said he was confident his company was in a better position than its rival, the FMX.

Howard Lutnick, billionaire CEO of Cantor Fitzgerald – US President-elect Donald Trump’s pick for commerce secretary — Launched FMX in September through its brokerage BGC Group.

Despite the launch, Gootch-Peters believes that the barriers to entry in the sector remain “very high”.

“One of the things that sets CME apart from its competitors is that it’s transaction-based, and it’s a leader in interest rate and futures derivatives, and they have the largest pool of liquidity in the world in US Treasury futures, which is why it has such high barriers to entry,” he said.