Barron’s Weekend Summary: Over 3,000 real estate professionals attended the annual Inman Connect New York conference in Midtown Manhattan
Cover:
-Over 3,000 real estate professionals attended the annual Inman Connect New York conference in Midtown Manhattan, marking the largest gathering since a Missouri court penalty against select brokerage firms and the National Association of Realtors (NAR), the industry's top lobbying group. The verdict has put brokers in an uncomfortable role of pushing for reform of the same organization that helps safeguard their golden goose, an industry-standard 5%-plus commission. NAR, founded in 1908, is part standards body, part Realtor advocate, and part industry lobbyist. It owns the trademark to the word Realtor and sets standards for the regional databases known as Multiple Listing Services (MLS). Membership in NAR is almost required for anyone looking to market a home.
Interview:
-Barron’s interviewed Jonathan Curtis, the chief investment officer of Franklin Equity Group and lead portfolio manager of the Franklin Technology fund. He has over 30 years of experience in the tech sector. He started his career as a software developer and test engineer and has been picking tech stocks for Franklin since 2008. Franklin Technology, a Luxembourg-based fund, returned over 54% in 2023 due to bets on most of the Magnificent Seven, a group of top-performing tech companies. Curtis sees more gains ahead for both the stock and the sector due to his bullish view on artificial intelligence. In a recent interview with Barron's, Curtis discussed his favorite stocks and the future of AI, predicting that the strength in the Magnificent Seven will broaden out this year, as he believes this is the start of a new business cycle in tech.
Tech Trader:
-The tech sector's top five companies, with a combined market value of $10T, reported earnings within 48 hours of each other. The week's earnings race was a draw, with Meta Platforms and Amazon.com up, Apple down, and Microsoft flat. The tech giants' results offered key insights into the outlook for technology, markets, and the planet. Microsoft posted a beat-and-raise quarter, besting Wall Street estimates in every category, with 28% growth in its Azure cloud business on a constant-currency basis. Microsoft's Copilot software for Office adoption was double the September-quarter rate. Meta, a more under-the-radar AI play, holds significant promise for targeting advertising and content to Facebook and Instagram users. CEO Mark Zuckerberg has committed to increasing his bet on AGI, or artificial general intelligence, which could magically solve all the world's troubles if it doesn't wipe out humanity.
The Trader:
-Philip Morris International's stock has fallen 1.1% since the start of 2024, lagging behind the Consumer Staples Select Sector SPDR's 3.1% rise. The stock is stabilizing in the low $90s, and earnings could be the catalyst for the shares to head higher. Sales for the quarter are expected to grow 10.5% to $9B, and the increased adoption of the company's smokeless products, including its IQOS heated tobacco, and should offset declines in traditional cigarette sales. Smokeless tobacco products are growing at an annual clip of just under 5% globally and could hit $124B by 2029.
-Copper is rallying, up 8% to $3.87 a pound since mid-October. The market is expecting increased demand for auto makers, consumer-goods manufacturers, and copper due to the better-than-expected economy. The Federal Reserve is likely to cut interest rates, and China is releasing $140B in monetary stimulus. As copper approaches the low-to-mid $3.90s, a breakout could signal confidence in the economic outlook and potentially lead to prices reaching $4.20, a level briefly touched in January 2023. Copper, closely associated with China, is testing resistance of a 'coil' developing for the past year.
Features:
-Demand for travel outside of China has been significantly reduced due to Covid-19, with the capacity of flights leaving and entering China reaching just over half of the same period in 2019. Domestic flights made up 92.6% of domestic flights last month, while flights into or out of China made up only 7.4%. Analysts are now more realistic about the recovery of Chinese leisure spending, including overseas travel, compared to their highly optimistic forecasts. The pessimism is based on the continued failure of consumer spending to rise. Morgan Stanley analysts predict that demand may take longer than expected to recover from 70-80% of pre-Covid levels.
-GE has published its final annual report on February 2, with the company splitting into GE Aerospace and GE Vernova in the coming weeks. Aerospace is GE's aviation business, while Vernova includes GE's power-generation businesses. GE Healthcare Technologies was spun out in 2023. The company will no longer be known as General Electric since its inception in 1892. CEO Larry Culp, who joined the board in 2018 amid significant business turmoil, believes that the company's financial health is in good shape. GE's industrial businesses generated free cash flow of $5.6 billion in 2017, $4.5 billion in 2018, and $3.9 billion in 2019. However, things have improved, with GE generating $5.2 billion in 2023 and expected to generate more than $6 billion in 2024.
Europe:
-Ferrari's stock has risen after the sports car maker reported a solid fourth quarter, with earnings per share of €1.62 ($1.75) on sales of €1.52B ($1.64B). Despite lower deliveries, sales rose 11%. Ferrari expects 2024 earnings per share of more than €7.50 on sales of €6.4B, in line with Wall Street projections. Shares were up 11.6% at $387.08, while the S&P 500 and Nasdaq Composite were up about 0.7% and 0.8%, respectively. Ferrari stock is on pace for the largest percent increase in more than three years, with a 2% year-to-date increase and a 37% increase over the past 12 months. However, this is more akin to luxury brand than maker-like stock performance: BMW shares are down about 3% this year and Mercedes-Benz Group shares are up about 1% in 2024, but down 9% over the past 12 months.
Emerging Markets:
-“On a zero-to-10 scale, Brazil today is a seven,” says Daniel Gewehr, head of Latin American equity strategy at Itaú BBA. Brazil's central bank has reduced interest rates from 13.75% to 11.25% due to easing inflation, with an expected 9% increase later this year. This could drive listed company earnings up 14% year-on-year at an index level. Domestic-related stocks, such as car-rental leader Localiza and jewelry chain Vivara, are seen as the most attractive. Emerging markets portfolio manager Verena Wachnitz believes the market is cheap due to earnings growth. Localiza is the only top-10 Brazilian stock in the index, while B3, parent company of the Bolsa exchange, is seen as a potential beneficiary. However, the effect on big banks like Itaú Unibanco Holding and Banco Bradesco is less clear, as lower rates may lead to lower interest margins, fewer nonperforming loans, and potential loan growth.
Commodities:
-A drone attack by Iran-backed militants in Syria and Iraq killed three US troops in Jordan, leading to retaliatory strikes and concerns about a tipping point in the Mideast conflict. Despite this, crude prices have barely budged and US gasoline prices have fallen since Hamas attacked Israel on October 7. Traders are hesitant to attribute much risk premium to oil prices, as barrels of oil are still being transported worldwide despite heated rhetoric, attacks, and blockades. In 2019, Iranian-backed forces attacked assets in the Persian Gulf, causing oil prices to spike 10% in a day. RBC Capital Markets analyst Helima Croft sees a "very real risk of a return to the 2019 playbook."
Streetwise:
-Allen Media Group's $14.3B offer for Paramount Global is likely to appear more generous as time passes, according to a bearish investment bank's buyout math. The $30B offer, including debt, works out to $21.53 per nonvoting share and more for voting shares. Investors are betting that Shari Redstone, Paramount's controlling shareholder, is unlikely to accept the offer. Just three years ago, BofA Securities valued Paramount at $53 a share. However, by early last year, BofA had marked down its value for Paramount to $32 a share and lowered its price target to $9, believing that Paramount was overly resistant to a sale. This week, BofA remains with $9, stating that Paramount is an attractive takeover target.
European airlines prepare for record summer passenger numbers
Ryanair, easyJet and Wizz Air point to signs of strong demand despite economic gloom and high ticket prices
European airlines are preparing for record passenger numbers this summer as people rush to book flights despite the economic gloom and high ticket prices.
Ryanair, easyJet and Wizz Air, the region’s three big low-cost airlines, all pointed to early signs of strong summer demand, as well as rising fares, in their most recent results.
Indications that consumers are prioritising travel have spurred airlines to increase flights over summer: European airlines will have 817.5mn seats available between April and October, according to travel data company OAG, the highest number on record.
“Demand remains very strong across the board,” said Wizz Air chief executive József Váradi.
Airlines are on course for a second consecutive bumper summer, after reporting healthy profits thanks to high fares last year.
Adjusted operating profits for the six largest European carriers are expect to hit €10.5bn in 2024, according to consensus estimates from FactSet, up from €9.2bn last year.
EasyJet said it had been filling two planes a minute during its busiest booking periods since the start of this year, while Ryanair said this week that bookings were about 5 per cent higher than at the same time last year, and prices were up “by a low single-digit percentage”.
EasyJet said prices were “well ahead” of the same time last year, while Wizz Air also pointed to strong fares.
Industry optimism extends beyond airlines. Saga said this week that it expected passenger numbers in its travel business to rise 20 per cent this year, while package holiday company On the Beach said the value of bookings in its peak January period was up 27 per cent year on year.
January is one of the busiest holiday booking periods, providing insights on trading for the rest of the year.
“We see positive booking momentum for summer 2024 with travel remaining a priority for consumers,” said easyJet boss Johan Lundgren.
Average air fares across Europe were between 20 and 30 per cent higher over summer 2023 compared with 2019, according to EU data published in October.
Demand for travel has shot up since pandemic restrictions ended but the supply of aircraft remains limited because of problems including delayed deliveries from Boeing and the grounding of some Airbus planes for checks on their engines.
While Ryanair and Wizz Air have both expanded aggressively since 2019, other airlines are keeping their schedules close to, or even below, pre-pandemic levels.
“It’s absolutely supply against demand. People still want to travel and — notwithstanding the cost of living challenges — consumers are prioritising experiences,” said Andrew Lobbenberg, head of European transport research at Barclays.
Analysts at Bernstein said in a recent note that current European airline capacity was “well below its pre-pandemic growth path”, forecasting a 15 to 20 per cent shortfall in seats compared with demand.
“The real issue is that we think there is a lot more demand than what we are able to deliver,” said Váradi.
Weekend Papers Summary
FINANCIAL TIMES
-The US has launched a series of retaliatory strikes against Iranian-linked forces in Iraq and Syria, identifying 85 targets at seven facilities. The strikes, which include those associated with the Islamic Revolutionary Guard Corps (IRGC) Quds Force and Iranian-backed militia, are part of President Joe Biden's escalating campaign in the region. The strikes are the first time the US has targeted the Quds Force directly in its campaign. The US officials have signaled that these strikes are the first in a phased response, with additional action planned to put an end to the attacks. Despite Biden's stance on not wanting to get involved in a wider war, he has indicated that the US would continue to strike back if Iran and its proxies do not cease.
-The Democratic campaign is considering endorsements from global pop star Taylor Swift to win votes in the upcoming Super Bowl. Swift, a culturally significant figure who has previously endorsed Democratic candidates, has a significant impact on the US economy and has a romantic relationship with a star player. The campaign is considering whether Swift's endorsement could boost Biden's chances in the upcoming election.
-Turkey's central bank governor, Hafize Gaye Erkan, has resigned just months into her tenure, citing weeks of smears against her in local media. Erkan, appointed in June as the bank's first female chief, will be replaced by deputy governor Fatih Karahan, who will be President Recep Tayyip Erdogan's sixth central bank chief in five years. Erkan, a former Goldman Sachs banker, has been a central architect of a sweeping economic policy overhaul since Erdogan's re-election in May and has been praised by foreign investors.
-The US economy added 353,000 jobs in January, nearly double the forecast, causing investors to lower expectations for an interest rate cut in March. The figures, compared to 180,000 expected for last month, bolster the Federal Reserve's stance that it may be too soon to cut interest rates.
-Over 40% of surveyed participants at a US bank session on Chinese equities believed the country was "uninvestable," following the vice-premier's call for more measures to stabilize the market and boost investor confidence. The poll results highlight the difficulties facing China's stock market, which has experienced three years of grinding losses after a decade of steady foreign inflows. Traders, asset managers, and hedge funds have reported that global investor confidence has been shaken by these losses.
-Donald Trump has expressed his desire to replace Jay Powell as the Federal Reserve chair, citing his political stance and his prediction of cutting interest rates to "help the Democrats" this year. Trump, who was critical of Powell from 2017 to 2021, believes Trump is trying to lower interest rates for the sake of getting people elected. Trump has not offered another four-year term to Powell in 2026, despite his nomination in 2018. Despite nominating Powell in 2018, Trump later turned against the US central bank, accusing it of keeping interest rates too high during trade wars with China and Europe.
-Panama's former president, Ricardo Martinelli, will not be able to run in the May elections despite leading the polls by double digits, according to experts. The Supreme Court threw out a final appeal over his money laundering conviction, confirming his conviction and making him constitutionally barred from running. Martinelli had been filing legal challenges to overturn the final decision.
-Tesla must update the software of over 2M US vehicles, marking its third major safety update in three months. The update covers all Tesla models and the new Cybertruck, as warning lights on the instrument panel are too small, according to federal safety standards. The small font size can make critical safety information difficult to read, increasing crash risk.
-US oil giants ExxonMobil and Chevron have achieved their second-biggest annual profits in a decade, despite a decline in prices. The oil giants increased output in 2023, doubling down on oil and gas, despite concerns over their commitment to emissions reduction. Exxon's full-year net income was $36B, its biggest profit since 2012.
THE NEW YORK TIMES
-The Biden administration has warned that US military strikes targeting Iranian forces and Iran-backed militia sites in Syria and Iraq will not be the last. The country's defense ministry reported that civilians and soldiers were killed in Syria, while at least 18 members of Iran-backed groups were killed in strikes on 26 sites. US officials are confident that the strikes on 85 targets at seven sites in the two countries have hit "exactly what they meant to hit," but analysts will make a closer assessment in daylight.
-The Biden administration has imposed sanctions and criminal charges on Iran's Islamic Revolutionary Guards Corps, its premier military force, for threatening water utilities and manufacturing Iranian drones. The sanctions were unsealed, and nine people were charged with selling oil to finance militant groups Hamas and Hezbollah. The timing was intended to pressure the Revolutionary Guards and its elite unit, the Quds Force, during a time of extraordinary Middle East tension. The sanctions have been brewing for some time, but the region has been in turmoil for months.
-Israel's defense minister has announced that ground forces will advance towards Rafah, a city in the southern Gaza Strip, which has become a refuge for hundreds of thousands of Palestinians displaced by the 13-week war. Rafah, a hub for humanitarian aid, is a sprawl of tents and shelters along the border with Egypt, housing about half of Gaza's 2.2 million residents.
-Judge Tanya Chutkan has scrapped the trial date for the Trump Election Subversion case, which was scheduled for March 4, as an appeals court considers Donald Trump's immunity argument. -Prosecutor Faian Willis admitted a personal relationship with Nathan Wade, but said it shouldn't hinder her prosecution. District attorney Fani T. Willis has admitted to a "personal relationship" with a prosecutor she hired to manage the Georgia election interference case against former President Donald Trump. However, she argued that this is not a reason to disqualify her or her office from the case. The admission came after allegations of an "improper, clandestine personal relationship" between the two surfaced in a motion from one of Trump's co-defendants.
-The Supreme Court won’t block use of race in West Point admissions for now. The court rejected an emergency request to temporarily bar the military academy from using race in admissions while a lower-court lawsuit proceeds.
-As Inflation Fades Globally, Growth Is Resilient, Especially in the US. Economies all over the world are lowering inflation while avoiding serious recession — but growth in the United States stands out.
-The US has quietly resumed deportation flights deep into Mexico. The flights, which had been paused for nearly two years, are designed in part to discourage migrants from repeatedly trying to cross into the US.
-Mark Zuckerberg and Bill Ackman, head of Meta, and one candidate backed by Zuckerberg, have failed to secure enough petition signatures to be on the Harvard Board of Overseers' ballot for election. The candidates, a slate of four backed by Ackman and one by Zuckerberg, said they were disappointed but appreciated the support. The failure raises questions about the support for Ackman's campaign against Harvard's leadership over the past few months. The candidates are looking forward to trying again next year.
-Vice President Kamala Harris has urged supporters in South Carolina to not ignore the Democratic presidential nominating contest, which is expected to be uncompetitive. Harris, who is the first primary in the nation, urged the state to make their voices heard and fight for freedom, democracy, and opportunity for all. The rally, which was Harris's ninth trip to South Carolina and her third of the year, demonstrates the importance she and Biden's campaign have placed on a dominant performance to begin their party's presidential nominating season. The rally was held at South Carolina State University in Orangeburg.
-Taylor Swift has sparked a wave of political conspiracy theories, with Fox News, Trump surrogates, and the MAGA universe circulating these theories. Some suggest Swift is secretly working for the US government and her relationship with Kansas City Chiefs tight end Travis Kelce is part of a political scheme. The theory suggests that Swift's involvement with Kelce and the NFL could lead to the Chiefs winning the Super Bowl and Swift supporting President Biden in the upcoming election.
-The secret text of a bipartisan Senate immigration bill may be released soon, with a vote expected next week. Secretary of Homeland Security Alejandro Mayorkas has been actively involved in the negotiations, despite former President Donald Trump's attempts to derail them. Meanwhile, Mayorkas has become the target of a partisan impeachment effort in the House, with Republicans accusing him of breaking the law by not more forcefully stopping migrants from crossing illegally into the US. Mayorkas has been cautious about the political repercussions of the immigration crisis, stating that the system is broken and that he will not use the term "crisis."
THE NEW YORK POST
-Mayor Eric Adams' administration is set to begin handing out pre-paid credit cards to migrant families staying in Big Apple hotels. The $53M pilot program, run by New Jersey-based Mobility Capital Finance, will provide cash to help asylum seekers buy food at the Roosevelt Hotel. The cards can only be used at bodegas, grocery stores, supermarkets, and convenience stores, and migrants must sign an affidavit stating they will only spend the funds on food and baby supplies. The Immediate Response Card initiative is similar to the state's food stamp program, SNAP, which provides lower-income New Yorkers with credit cards to cover meal costs.
-President Biden's administration is urging grocery chains to lower prices on goods like milk, eggs, and bread. The president's message is that companies with lower input prices should pass these savings on to consumers. Walmart, Kroger, and Albertsons are currently booking 20-plus percent gross profit margins, similar to their pre-COVID-19 levels. The message is aimed at companies that have not passed these savings on to consumers.
Goldman Shakes Up Management Committee
Wall Street giant also creates committees overseeing banking and markets
Goldman Sachs GS 1.04%increase; green up pointing triangle is shuffling its management committee, in the latest indication of the power dynamics at the Wall Street giant.
Firm veterans Alison Mass and George Lee have left the group, which comprises the heads of the bank’s main divisions and other top executives.
Goldman is also creating two new committees to help oversee investment banking and markets, according to people familiar with the matter. Senior executives have contacted roughly a dozen bankers in recent days inviting them to join the group that will work on strategic initiatives in investment banking, while similar conversations have occurred for the new markets committee.
Chief Executive David Solomon and President John Waldron have been in a monthslong process to determine whether to change the membership of the management committee.
Contenders to join it currently include Will Bousquette, chief operating officer of asset and wealth management, and Kathleen Connolly, global director of internal audit, some of the people said.
“Final decisions haven’t been made and no one has yet been asked to join the management committee,” said Tony Fratto, a Goldman spokesman.
Mass will remain chair of investment banking at Goldman and Lee will remain co-head of the office of applied innovation, Fratto said.
Roughly two dozen executives currently sit on Goldman’s management committee.
The new investment-banking and markets committees will be led by Dan Dees and Ashok Varadhan, respectively, co-heads of the global banking and markets division.
Change is afoot in the top echelons of Goldman. Jim Esposito said this week that he is planning to leave Goldman after nearly 30 years. Esposito, the other co-head of global banking and markets, aspired to be president or CEO of Goldman. Solomon, who had been under pressure from Goldman partners who disagreed with the firm’s expansion in consumer lending and other issues, has indicated to top Goldman executives that he isn’t planning on stepping down soon, The Wall Street Journal has reported.
Goldman bankers are paying close attention to committee invites and executive changes as a sign of whose power and influence is rising and whose is falling.
The invitations have been met with mixed emotions. Some see the invites optimistically, an indication that they are the next generation of leaders within their divisions. Others see it as a consolation prize, a sign that they won’t make the management committee. Meanwhile, some executives are miffed that their co-heads have been asked to join the new committees and they haven’t.
People familiar with the matter say that among those invited to join the investment-banking committee are Vivek Bantwal, Iain Drayton, Stephan Feldgoise, Pete Lyon, Anthony Gutman, Matt McClure, Kim Posnett, Suhail Sikhtian and Marshall Smith. Beth Hammack, a co-head of the global financing group who is currently on the management committee, was also invited to join.
The moves are expected to be a subject of chatter at the partners meeting that Goldman is holding this coming week in Miami.
Louis Vuitton’s Strategy to Win the Olympics
Luxury giant LVMH is the biggest local sponsor for this summer’s Paris Games. It’s also designing the medals, making French athletes’ uniforms and stocking VIP suites.
PARIS—The Olympics are coming to Paris and, despite promises of a more austere, more sober event, the world’s largest luxury company is treating them like the ultimate home game. LVMH, the group headed by Bernard Arnault, is pulling out all the stops to take over Paris 2024.
One of its jewelers, Chaumet, is designing gold, silver and bronze medals for the Olympics and Paralympics. One of its fashion brands, Berluti, is creating the uniforms that French athletes will wear during a lavish opening ceremony on the Seine. Moët Champagne and Hennessy cognac will flow through every VIP suite. And Louis Vuitton leather goods, which are already used to ferry prizes such as the World Cup and the NBA Finals trophy, will be impossible to miss at the Games.
That kind of ubiquity across the monthlong extravaganza of the Olympics and the Paralympics cost LVMH some 150 million euros, or about $162 million, according to a person familiar with the deal, making the group the single largest local sponsor of Paris 2024.
“The Games are in Paris and LVMH represents the image of France,” said Antoine Arnault, Bernard’s eldest son and the chairman of Berluti. “We couldn’t not be a part of it.”
More than simply hitching the conglomerate’s wagon to the Olympics, the move reflects a larger strategic push into sports by the world’s top luxury companies. They realize that a growing share of their business depends on aspirational consumers they can reach through hugely popular events that ditch old-school exclusivity—some 60% of global luxury sales today come from people who spend less than €2,000 a year on luxury goods, according to Boston Consulting Group.
Not so long ago, mass-appeal sporting events were seen as beneath the highest-end luxury brands, which preferred to target jet-setting country-clubbers through golf, tennis, polo, sailing and Formula One. But in the age of social media, where athletes seamlessly cross into the global influence market alongside pop stars and Hollywood actors, their reach—and universal appeal—has become too significant to pass up.
In 2022, the person with the largest following in the history of social media, Portuguese soccer star Cristiano Ronaldo, cropped up in a Louis Vuitton campaign. Sitting across a chess board from him was his greatest rival, Argentina’s Lionel Messi. Though the two players were never in the same place for the Annie Leibovitz photo shoot, it didn’t prevent the ad from becoming one of the most liked images ever posted on Instagram.
Ahead of the Games, Vuitton sponsored a fencer and a swimmer, while LVMH’s Dior has backed a gymnast and a wheelchair tennis player.
Many of LVMH’s competitors have taken a similar tack. Last summer, Prada sponsored China’s national team at the women’s World Cup—the post announcing the sponsorship was viewed 300 million times on Chinese social-media platform Weibo. Gucci signed up a stable of athletes including the English soccer player Jack Grealish and the Italian tennis player Jannik Sinner. But none has attempted to co-opt an entire event the size of the Olympics.
For Paris 2024, the deal represents a delicate trade-off. Organizers have promised a more reasonable approach to the Games, designed for the masses without the overspending that has defined recent Olympics. While LVMH’s money helps Paris 2024 reach its goal of being almost entirely privately funded—the current figure is 97%, organizers say—the company’s brands cultivate a high-end image that’s potentially at odds with the idea of a toned-down Olympics.
Complicating matters is Bernard Arnault’s image in France: One of the world’s richest men is a lightning rod here for discontent over growing inequality. Still, LVMH points out that its portfolio includes many more affordable brands, such as the cosmetics giant Sephora and several midrange Champagnes. And the Olympic spotlight, for all of the extra scrutiny it invites, represented an irresistible opportunity to burnish its status as the flag-bearer for French taste, corporate might and savoir-faire.
“Our craftsmen are perfectionists, just like top athletes and coaches,” Bernard Arnault said. “And our houses carry the image of France throughout the world.”
Sponsors are betting that as the Olympics unfold from July 26 to Aug. 11, they will become the most appealing Games in over a decade. Preparation has been relatively drama-free, without the time and budget overruns that have beset previous editions. Concerns over congested public transit and high prices for tickets and hotel rooms have hardly deterred sponsors. The prospect of a Parisian backdrop and an opening ceremony with athletes on barges cruising down the Seine is a much easier sell than some of the challenging locations the event has visited since London 2012. There was Sochi 2014, under the supervision of Vladimir Putin, followed by the chaos of Rio 2016, the remoteness of Pyeongchang, South Korea, in 2018, and the pandemic Games of Tokyo 2021 and Beijing 2022.
“You have to convince your partners, you have to show them that it’s going to be worthwhile,” said Tony Estanguet, the former Olympic canoeist in charge of the Paris 2024 organizing committee. “Companies don’t become partners just to please Estanguet.”
The Olympics always lean heavily on hometown sponsors, but LVMH’s involvement will be the most eye-catching of Paris 2024’s 60 or so major partners. People familiar with the process note that LVMH has been the most demanding by some distance. During negotiations, the company went as far as to push for creative input on the opening ceremony, which will snake past the Louis Vuitton headquarters, LVMH’s Samaritaine department store and its Cheval Blanc hotel. It took a personal meeting between Arnault and International Olympic Committee President Thomas Bach in December 2022 to pave the way to a deal.
Then, when the time came to unveil the partnership last summer, exactly one year before the Games, LVMH announced it not with a traditional news conference, but in the shadow of the Eiffel Tower on the Champ de Mars, with the IOC’s Bach in attendance.
“This embodies what France does best,” Antoine Arnault said at the time. “Heritage, ambition, creativity, excellence.”=
From its stable of jewelers, which includes Tiffany’s and Bulgari, the company tapped Chaumet, a Paris-based house that predates the French Revolution, to carry out the high-pressure task of designing the medals. So Chaumet delved into an archive of 66,000 drawings for inspiration while operating within the constraints imposed by the IOC—and its own bosses.
“When we make a special order we usually have a customer who is quite flexible,” said Benoît Verhulle, the 13th workshop chief in the history of Chaumet. “Here, it was really super-strict. We had to stick to an entire design within a cylinder of 8.5 centimeters.”
Berluti, LVMH’s Paris-based shoemaker and clothing designer, received the equally high-profile assignment to make around 1,300 outfits for the French delegation to wear during the Olympic and Paralympic opening ceremonies. The company’s designers were told that, despite being founded by an Italian, Berluti’s work needed to capture French elegance and craftsmanship.
And there was one other design note to be respected. The uniforms would all have a few words stitched into an inside pocket:
LVMH
Artisan of All Victories
‘Uninvestable’: China’s $2tn stock rout leaves investors scarred
Some global fund managers fear government efforts to stabilise the market are too little, too late
Chinese authorities’ promise of “forceful” measures last week was their most vocal attempt yet to halt a stock market sell-off that has wiped out almost $2tn in value. For many investors at a Goldman Sachs conference in Hong Kong, that vow was too little, too late.
More than 40 per cent of those surveyed while attending a session on Chinese equities held by the US bank on Wednesday said they believed the country was “uninvestable”. That came just a day after the country’s vice-premier openly called for “more forceful and effective measures to stabilise the market and boost confidence”.
“That many people in Hong Kong voting no [on Chinese equities] is pretty high relative to the constructive home team baseline you typically find,” said Timothy Moe, chief Asia-Pacific equity strategist at Goldman Sachs, adding that the poll results were “emblematic” of the difficulties facing China’s stock market.
Traders, asset managers and hedge funds told the Financial Times that after a decade of steady foreign inflows to Chinese markets, global investor confidence had been shaken by three years of grinding losses, relieved only by fleeting rallies that quickly fizzled out.
This aversion to China stocks among global investors has become more entrenched over the past 12 months thanks to lacklustre economic growth, an unresolved property sector crisis, underwhelming government support for markets and fraying diplomatic relations between Beijing and Washington.
As a result, the benchmark MSCI China stock index is now down more than 60 per cent from its peak of early 2021, reflecting a loss of more than $1.9tn in market capitalisation over that period.
“The global investors we spoke to are by and large out of China,” said Goldman’s Moe. “It’s 3 per cent of your benchmark [index] but can take up 10 per cent of your time . . . and if there’s a rally you can go back in [later]”.
That is a stark contrast to attitudes towards China from just a few years ago, when foreign investors feared they would miss out on the country’s rapid economic growth and domestic consumption turbocharged by rapidly expanding ecommerce platforms.
Now, investors describe a status quo where President Xi Jinping’s focus on stability and national security has cowed once-thriving technology groups and accelerated a financial decoupling from the US. Meanwhile, efforts to transition away from real estate-dependent growth have weighed on the economy, dragging down earnings and the shares of listed companies.
However, the stock market rout has pushed valuations low enough that some Wall Street banks are calling for investors to jump back in. JPMorgan has forecast the MSCI China index — which has already dropped around 10 per cent so far this year — will finish the year at 66. That implies a rise of more than 30 per cent from the benchmark’s closing level on Friday.
But offshore investors trading Chinese equities through Hong Kong’s stock connect programme have continued to dump Shanghai- and Shenzhen-listed stocks, as evidenced by net sales of Rmb11.8bn last month. That marked the first time foreign investors had been net sellers of Chinese equities during the opening month of the year since the scheme began in 2014.
Global asset managers said that it would take more than just low valuations to justify the effort needed for them to start bargain-hunting in mainland markets.
“There’s been a dearth of foreign interest for a long time, and nothing has changed,” said the head of Asia Pacific at one large UK asset manager. “China is quite cheap, but with lots of caveats all the same.”
However, a small cohort of investors have begun to show interest, said traders in Hong Kong, adding that hedge funds eager to ride any recovery rally had built up indirect exposure through options contracts in recent weeks.
Even after the rout, China still forms about a quarter of the MSCI Emerging Markets index, making it hard for investors using the benchmark to ignore. Still, some investors who screen out this Chinese weighting are beginning to take note of stock valuations.
“Is China cheap, is China unloved? Yes,” said one emerging market portfolio manager. Even in a strategy that does away with benchmark exposure to China, he said, “you can have a discrete allocation” to Chinese stocks, which are now trading at a significant discount to other emerging markets or the US.
Yet many foreign investors remain concerned over risks such as the potential for a US-China conflict in the Taiwan Strait, or more aggressive foreign policy from Washington should Donald Trump secure another term as US president later this year.
These risks, they fear, could easily derail a rally in Chinese markets.
George Livadas, manager of Upslope Capital, a Colorado-based hedge fund, said many peers were hoping to buy Chinese stocks at the bottom, given current prices, but argued they had failed to understand how much US-China relations have changed in recent years.
“People will talk about everything except what I think is the obvious headwind,” he said. “It is not just some small disagreement [between the two superpowers]. It is a potential serious risk.”
Hui Ka Yan: the Evergrande tycoon faces his downfall
Once the richest man in China, the liquidation of his property empire marks the end of an era
Evergrande’s homepage is frozen in time at just over a year ago. Back then its founder, Hui Ka Yan, still seemed hopeful he could save the world’s most indebted developer. “All Evergrande employees must . . . never give up,” the charismatic tycoon tells executives in one video, exhorting them to finish thousands of apartments left incomplete after the company officially defaulted on its $300bn debt in 2021.
But the brave words could not avert disaster. This week a Hong Kong judge declared “enough is enough”. Evergrande, whose collapse helped spark a property crisis that has spurred a slowdown in the world’s second-largest economy, should be liquidated. Hui was not able to react. The entrepreneur, named Xu Jiayin in Mandarin, disappeared in September and is being held somewhere in China on suspicion of involvement in “illegal crimes”.
But the ruling and his detention are an ignominious end to the rise of a former steelworker who became one of China’s highest-rollers during the boom years. In less than three decades, Hui created one of the country’s largest property companies while dabbling in football, electric vehicles and theme parks. He used his fabulous wealth to ingratiate himself with elites from Beijing’s “red aristocracy” to the British royal family.
“Of all the developers, I have to say he was one of the more aggressive ones,” says Desmond Shum, author of Red Roulette, a book about elite Chinese business and politics, who knew Hui in his heyday. “So when the market turns, that these people are the first ones to go on the chopping block, it’s not surprising.”
Like many of his generation, Hui’s personal life mirrored China’s rapid changes after opening its economy in the late 1970s. Born into poverty in Henan province, he was raised by his grandmother. After working in the steel industry in the 1980s, he launched Evergrande in 1996 just in time to catch a housing boom driven by China’s new middle class.
After expanding into 280 cities, according to Evergrande’s website, Hui invested in theme parks and poured funds into a government “shantytown” redevelopment programme. This left him heavily exposed to China’s smaller cities, where experts warned the market was heading into oversupply.
He and other developers often sold houses before construction, using the funds to acquire land while banks offered mortgages on the unbuilt properties. Developers and local governments became addicted to the debt-fuelled model. “That is the problem with a bubble. Once you’re in, you’re in — it’s almost impossible to get out,” said Zhu Ning, professor at the Shanghai Advanced Institute of Finance and author of China’s Guaranteed Bubble.
Hui came to embody a brash new breed of Chinese tycoons, sporting a gold Hermès belt buckle, buying mansions in Sydney, Hong Kong and London, and flying around in private jets. In 2015, he bought a 60-metre mega yacht and celebrated the victory of his football team, Guangzhou Evergrande, in Asia’s Champions League, with co-owner internet billionaire Jack Ma and Britain’s Prince Andrew. In 2017, he topped the Forbes China rich list, with a total net worth of nearly $43bn.
Those who knew him say he had an easy-going, bright personality, perfect for high-level networking. According to one banker: “Hui is a person with high EQ . . . [otherwise] how was he able to persuade some big Hong Kong financiers to invest in him and Evergrande?”
Hui’s downfall began in 2020 when President Xi Jinping’s government introduced a new policy limiting leverage as it sought to redress economic imbalances. Evergrande’s aggressive model meant that this translated quickly into a liquidity crisis. Its offshore bond restructuring was in effect blocked last year after the authorities found irregularities in its mainland arm, leading to the liquidation.
Few expect, however, that the liquidation order will extend to the mainland. Beijing would not surrender control of the potentially politically explosive process of resolving Evergrande and other developers’ debts — and finishing their vast number of incomplete apartments, analysts said.
Hui was not available for comment and Evergrande did not immediately respond.
Many now believe Hui could follow other tycoons who have fallen foul of Beijing, such as Xiao Jianhua, a politically connected financier who was snatched from the Four Seasons in Hong Kong by Chinese agents in 2017 and sentenced to 13 years in jail. “Even if someone wanted to contact him [Hui], they might not be able to do so,” Hong Kong tycoon Joseph Lau, who used to play cards with him, told reporters in November.
His fall marks the “ending of an era”, says Shum. “Many Chinese business people over the last few decades were maximum risk-takers because the economy was on a one-way upward trend . . . So when the downturn comes during the Xi era, people are completely unprepared for it.”
Hui’s legacy promises to be mixed at best. On Beijing’s outskirts, Central Mansion is a former Evergrande housing project “rescued” by the state-owned China Railway Construction. After a long idle period, six of its 15 buildings were finished this month, an agent said, while the rest are set for the end of 2024.
One customer tells the Financial Times she is concerned about her investment after the liquidation — the compound will still be managed by an affiliate of Evergrande Property Services. But the realtor reassures the FT that “there’s nothing to be worried about” — Evergrande no longer has any real influence. “After all boss Xu is still behind bars,” he says.