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Fund manager reveals what needs to change for her to invest in luxury stocks

Now is the time for stock selectors, says Sanlam Investments' Gooch-Peters

A go into a nosedive in Chinese consumer confidence is holding Sanlam investments’ Hannah Gooch-Peters back from buying luxury look ats like LVMH.

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

“A lot of these European companies were really harvesting their growth from the Chinese consumer and so when we started to see missteps in execution … it was almost the perfect assault for L’Oreal and LVMH,” Gooch-Peters said, as the companies were trading at “exceptionally high valuations for the growth they had to present oneself.”

L’Oreal and LVMH shares are down around 20% and 10% respectively over the last 6 months, as fears over with the strength of the Chinese consumer weighed on the sector. Peers including Estee Lauder — which Gooch-Peters said had also received mistakes in China — and Gucci-owner Kering have fallen significantly over the period, too.

Fourth-quarter sales at LVMH mow down 3% versus the same period a year before, as revenue in Asia, excluding Japan, slid 16%. The league’s CFO said at the time that Chinese consumer confidence was at Covid-era lows.

“What we want to see is just some uncountable confidence in the improvement in the Chinese consumer,” said Gooch-Peters. “We would need a larger margin of safety for us to be able to get tortuous in that part of the market, before we go there.”

Top pick

One stock the portfolio manager does like, however, is CME Corps, one of the world’s largest derivates marketplace.

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

She added that she also be partial ti the U.S.-based company’s “cash flow stream [that] is very, very sustainable, very predictable,” adding that investors “don’t force to worry” about the cost of servicing debt.

CME Group post record revenues in October and earlier in the year CEO Terry Duffy asserted he was confident his company was in a better position than its rival, FMX.

CME Group CEO Terry Duffy on record quarter

Billionaire Cantor Fitzgerald CEO Howard Lutnick — U.S. President-elect Donald Trump’s pick for merchandising secretary — launched FMX in September under his brokerage BGC Group.

Despite the launch, Gootch-Peters believes barriers to entry in the sector corpse “extremely high.”

“The thing that sets CME aside from its competitors is it’s primarily transaction based, and it’s the leader in consideration rates and futures derivatives, and they have the biggest liquidity pool in the world in U.S. Treasury futures, which is absolutely why it has such high barriers to entry,” she said.

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