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Still Only An Equity Story

10 October 2018 by lberuti

It was not a good day for stock investors, as all major indices lost in the region of 2%. The pain for equity holders of luxury good companies begun a few days ago, when rumours of tighter control by Chinese customs agency on its citizens at border points first surfaced. These were confirmed by Jean-Jacques Guiony, LVHM’s ( LVMH Moet Hennessy Louis Vuitton ) Chief Financial Officer, during a call with analysts this morning. He said China is effectively stepping up border checks on returning travellers in a crackdown on undeclared imports. His comments fuelled alarm among investors, even though the company reported a quarterly sales increase in line with forecasts. Louis Vuitton sales growth to Chinese shoppers has slowed slightly, but still stands in the mid-teens. But it looks as if people were just looking for excuses to take profit in one of the few sectors that has not had a correction yet. The stock lost 7% on the day and is 14% of its recent peak. While the rout extended to equities of the whole luxury sector, their credit risk premia were left almost unchanged. LVMH’s CDS closed at 37bps, only 5bps wider from its tightest level of the year.