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Hello, and welcome to World Business Report from the BBC World Service.
I'm Roger hearing in on this edition.
French luxury giant LVMH publishes disappointing first quarter results.
So how far are the trade tensions and uncertainty beginning to bite in this market?
Also China's president arrives in Malaysia to woo the neighbourhood.
As tariff pressures grow, we hear from Malaysia's trade minister.
South Korea funnels billions of dollars into its microchip industry as Washington talks about increasing tariffs on them.
And we're in Finland as the Nordic nation tries to boost the environment for start up entrepreneurs.
But first, it may not be part of the global economy that worries you the most, But luxury goods sector is a major driver of earnings and jobs, and right now it's not looking too healthy.
LVMH, whose high -end brands include Louis Vuitton, Dior, Champagne House Moway and Beauty Chain Sephora, spends millions each year on celebrity deals for the likes of Pharrell Williams, K -pop star Lisa and actress Emma Stone to curate a certain brand image.
Who's bringing the champagne?
I'm on it. More at Shandon.
Throughout the many years Louis Vuitton has always maintained their originality and their iconic monogram is such a historic piece that is popular until this day.
My journey, My perfume, Louis Vuitton.
Well it may all look shiny and expensive, but the company's now announced disappointing first quarter results, taking it briefly below its main rival Hermes as Europe's largest luxury company.
A 3 % decline in the LVMH's first quarter sales, well below analyst expectations for 2 % growth, pointed to another difficult year for luxury companies following President Donald Trump's recent tariff announcements which have sparked fears of recession.
So what should we read into all this.
Joining me now is Angelina Barsquette who is Bloomberg's European luxury and retail reporter.
Angelina, thanks so much for being with us.
So what do you see as being what's behind this decline in sales, particularly in the Asian market?
Yes. Hello. Absolutely.
It was pretty much a very bad quarter for LVMH.
They disappointed on all the divisions, crucially the key fashion and leather goods one.
So that's the one that includes Louis Vuitton, Christian Doure and all the big fashion labels that you mentioned.
The big issue is that there is still a major slowdown in China.
The consumer demand in China is very weak.
There's issues with the property market there.
There's youth and employment.
So that market hasn't come back.
But interestingly, the US also fared worse than expected and so we're only talking here about the first quarter because the tariffs, the big tariff announcement were announced early April.
So that's really the start of the second quarter.
But initially even we saw, sorry, towards the end of the first quarter, we saw signs that it was hitting what they're calling the aspirational customer.
So the ones who are buying entry level prices, products such as beauty, cosmetics, or even a cognac in the U .S. Yeah, so it's a complicated picture clearly, And interestingly, on both sides of the trade war in a way, China and the US, I mean, you said as it's early days, because it can't reflect obviously everything that's happened in the way of tariffs, how do you think it will go?
Now we do sort of know that in 90 days time, there'll be some very hefty tariffs coming in.
Yes, exactly. I mean, the CFO of LVMH yesterday, she said that because of this reprieve, I mean, there's still uncertainty.
So we'll see what happens early July, if there's a deal.
If we stick to the current 10 percent, that's been talked about.
But what luxury companies like LVMH can do, they have pricing power.
And so she mentioned this last night.
But however, you can do that up to a point because in the recent years, LVMH and its competitors have increased prices by a lot.
And that is going to be a delicate move if you do that.
They can also decide, for instance, to ship more products as well towards the US before the potential 20 % kick in so that they can do that for ones in spirits.
And there was also the question of production.
Can they produce more in the US?
And she said that they already produced at Louis Vuitton, they have three plants.
And also at Tiffany, so that they have potentially capacity to boost output there, but they will not review radically their strategy when it comes to production in the US.
Yeah, it's interesting in this, how it's working.
You mentioned competitors there because it was interesting.
Just for a moment until things changed, Hermes seemed to have gone in the lead ahead of LVMH.
How are the other competitors in this market doing?
Yes, exactly. In front of my eyes I have their share price, and actually Hermes is still ahead in terms the market gap, it's still ahead of LVMH, so we'll see how they do at the end of the trading session.
But yeah, it's a phenomenal turn of events because, well, Hermes is much smaller in terms of sales.
But because you know, there's a pecking ward in the luxury industry, and they're considered to be at the top.
They cater to really the wealthiest of the wealthy, to the 0 .1 % and so there's more resilient.
Hermes produces bags such as the Birkin or the Kelly bags and they're known to have wait lists.
So hence what we're seeing are that.
So Hermes also reports this week.
So we'll have to see what they can say about tariffs and also how they're performing in the first quarter.
Yeah, because what you mentioned there is really I suppose at the core of this you know we talk about trade wars, people losing an awful lot of money.
We know billions wiped off share markets.
Presumably those amounts of money would normally end up perhaps in the accounts of the very very very rich it's not happening so much are they do you think then pulling back and saying simply well we don't need these things right now absolutely uh the the luxury market is a very there's a big psychological element to it and if you're seeing your 401k or even your stock portfolio going down even you know some of the really well off they may say you know hang on a second i may not splurge because it's not the time you know the markets are too volatile.
So that's the market route that we saw, especially in April will definitely be a hindrance for consumption, especially in the US.
Well, thanks very much for telling us all about that, Angelina Rasko, at Bloomberg's European luxury and retail reporter.
Well, China's President Xi Jinping is heading to Malaysia.
In fact, he's just arrived.
And that's the next stop in his charm offensive across Southeast Asia.
Earlier, he was in Vietnam paying tribute to the country's former leader Ho Chi Minh.
It's all part of an attempt by Beijing to portray itself as a stable trading partner in contrast to the US.
Our Asia business correspondent, Nick Marsh is in Kuala Lumpur and asked him how Malaysia felt about being caught in the middle of a full -blown trade war.
Well, I think most countries in this region expected Donald Trump to come into his second term quite bullishly when it comes to China but they didn't expect how quickly this trade war would escalate and the extent of it you know the word I keep hearing from businesses here from officials is uncertainty because countries here have been hit directly by tariffs in the first Donald Trump term they were dealing as the kind of you know the middlemen you know from the fall out of the U .S.-China trade war, now they are being hit by pretty hefty U .S. tariffs directly.
So businesses here are really scrambling to try and strategize, to try and find Plan A, Plan B, and Plan C.
And if you're a government official in this region during this 90 -day pause during which some negotiations are supposed to happen, you're going to be thinking, What am I dealing with here?
What is the game plan when things seem to change day to day, hour to hour, and how on earth am I going to get these tariffs removed from my country when I go to Washington, whenever that's going to be?
I was actually speaking to the Malaysian trade minister here in Kuala Lumpur, Zafrul Aziz, and I asked him, did you ever imagine finding yourself in this sort of situation?
No. A short answer to that, no. But it is what it is.
We have to deal with it.
I must say, caught us by surprise, to the extent of it.
We understand the concerns of the US, we disagree.
We believe that the information that they have is not accurate.
Malaysian trade minister there.
But I suppose it, in the end, particularly with the visit of Xi Jinping, it comes down to taking sides, doesn't it?
I mean, deciding whether you're with China or whether you're with the US.
Well, I mean, the message from Xi Jinping in this week -long kind of charm offensive, if you want, in this region is do you want to be with the so -called bullying tariff imposing unreliable United States or do you want to be with us your friendly free trading reliable neighbors China and this is an important region that we're talking about you know the best part of 700 million people caught between these two economic superpowers and important manufacturing region as well as an an important market, you know, for potential exports as well.
And China has invested very heavily in Southeast Asia, you know, in infrastructure with its Belt and Road Initiative, in factories.
It's the biggest trading partner for every country in Southeast Asia, so countries need China very, very much. But on the other hand, America is the number one export markets for many, many companies here.
You can't just write off the US market just like that.
So do you pick a side?
I mean, I asked Mr Zafrul, the Malaysian Trade Minister, that question.
I think we can't choose, right?
And we will never choose.
One cannot not deal with both.
Just these two economic powers contribute close to 50 % of the world's GDP.
And for Malaysia, even for ASEAN, these are the two top trading partners, the top two investors.
Both countries are very important to our economy.
The Malaysian trade and investment minister there I suppose that the thing Nick now really is concerned about China and the goods that China can't send to the US where it's going to put them.
Could Malaysia end up being the victim of dumping?
It could be, yes. And the minister actually very directly and honestly said that that was something his country was worried about and that his government would be taking, you know, some sort of protective measures to mitigate against that, to a certain extent that already happened during the first Trump administration.
But many countries, such as Malaysia, when it comes to semiconductors, Cambodia and Vietnam, when it comes to, you know, textiles, clothing, they kind of benefited because Chinese companies were basically just you know, set up shop in the region as a way of getting around the tariff, so actually it created quite a lot of investment and jobs.
Nick Marsh there in Kuala Lumpur.
Another country that's been badly spooked by the tariff news coming out of the US is South Korea and just as President Donald Trump's been talking about a probe into additional tariffs on semiconductors, South Korea has moved to boost its own chip industry by increasing a package of support by five billion dollars to twenty three billion dollars.
The government there says the production of the chips that power the world's computer systems is vital and they're responding to the uncertainty over US tariffs.
As I heard from Yuna Ku from BBC Korea.
There have been $23 billion US dollar support package announced today and this is a 27 percent increase from last year's commitment.
So this package was already notified considering that semi -conductor industry is the core industry for South Korea and the government is always willing to support it.
However, it was quite a big increase in number.
So, reportedly it's reflecting growing uncertainty, including concerns over Trump's tariffs.
And will this money be going directly to companies that make these as a form of grant almost or loans or how will it work?
So this package includes many different aspects of support and those who are getting it, who are benefiting from this package will include both the big conglomerates like Samsung or SK Hynix, and also the small and medium -sized companies.
And according to the Korea Semiconductor Industry Association, who instantly welcomed a government decision.
They welcomed in particular, the funding for advanced manufacturing infrastructure, and subsidies for small and medium sized enterprises, and the expansion of low interest loans for these companies and they are thinking that this will be be a strong driving forces for these companies to expand investment in the future.
How big a problem is what Donald Trump is looking into in terms of tariffs on on microprocessors.
How big a problem is that for South Korea?
So this is a real problem because semi -conductor business is a core of South Korea's economy and there have been deepening worries even before this tariff situation, because there have been increasing competition from China and Taiwan as well.
And although, as you all know, Trump's tariff hasn't been fixed yet in terms of semiconductor industry.
And so that is the reason why the government and business entrepreneurs are trying to remain quite low key, which means they do not want to speak out about this issue because they quite afraid that any of their comments or actions might influence the negotiation between the U .S. and South Korea in an unfavorable way.
But South Korea can export I guess to other countries, not just to the U .S. with its microprocessors.
To Europe, I guess, Japan, there are lots of places.
But still, you know, the U .S. is top two exports country for South Korea.
So top one country is China.
And there is only a slight difference, a slight gap between the two.
So I will say the U .S. is one of the biggest consumer.
And as you all know, China is rapidly developing its own semiconductor products.
So as time goes by, there will be even lesser demand from China.
So it's very crucial for South Korea to secure the U .S. as a customer, and yeah, that is the reason why this is very important for Korea.
You know, Ku there from BBC Korea.
Your withworld business report from the BBC World Service.
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CFP professional at let's make a plan dot org Now Boeing shares have taken a bit of a dive, at one point down nearly 3 percent on Wall Street amid reports that President Trump's tariff policies could hit their future sales.
Beijing is said to have ordered its airlines not to take any more deliveries of Boeing planes in response to the steep import taxes imposed on Chinese products.
The blamemaker said it had no comment on these reports.
Joining now from Chicago is the aviation consultant Scott Hamilton.
Scott, I mean, we don't know absolutely for certain.
It's not officially confirmed, but it's pretty clear that this order is going out at the moment.
Is it unusual for the Chinese to do this.
The Chinese have boycotted Boeing before.
When Trump was in the first administration and levied a tariff back then, the Chinese started suspending or delaying deliveries.
And then, of course, when the MAX was grounded, China ceased taking deliveries for more than two years.
Now, I mean, previously, China's also used this playing off of Airbus and Boeing, you know, the two big rivals, and used that as a way, a tactic, haven't they?
Oh, they sure have. This has been a Beijing tactic for, gosh, a couple of decades, that I can remember, certainly.
So how is this going to affect Boeing?
We know that Boeing's had troubles in all sorts of ways.
But at the moment, I was talking to someone who said, oh, there's a lot of aircraft orders out there.
Boeing should still be able to get rid of these aircraft that is built.
It won't have trouble in that area, and if China wants to go elsewhere, then it can.
Yeah. The way production happens is that they call it cutting metal occurs within 18 months of the scheduled delivery.
And so once you're inside that 18 months becomes a little bit more problematic to redirect those airplanes.
That's not to say it can't be done.
There's a cost involved.
But anything beyond 18 months Boeing could go ahead and resell those positions without any problem.
And Scott, they've got their own homegrown aircraft production business.
Is this going to be pushing all their work towards them, do you think?
Well, it could. What we don't know at this point is if the Beijing order not to start importing parts from the US is going to be extended to the COMAC C909 and C919.
And those two airplanes use a lot of US -sourced parts.
So is Beijing going to harm their own homegrown industry by banning importation of those parts?
We just don't know that answer yet.
And will they also, I suppose, then go elsewhere?
Brazil, I suppose, is an option, and obviously Airbus.
Well Airbus is sold out until the end of the 2030 decade so that's going to be problematic for them to go to Airbus.
Embraer in Brazil has a very different category airplane than the 737 and the A320.
It's a smaller airplane.
It doesn't have the same range and their lines are sold out for the next couple of years as well.
Interesting moment.
We'll see it all plays out.
Scott, thanks so much for being on us.
Scott Hamilton there.
Well, let's look at the markets in fact.
And Fianna Sincotta, Financial Market Analyst at City Index, joins me now.
Fianna, first of all, Boeing shares did drop quite a lot, didn't they?
Yes, that's right. So, we've seen them.
I mean, the last time I was looking, they were trading down around 7%.
So, that's right. They're down around 1 .8.
Now as we speak. So, they're still down, as you'd expect, but perhaps not as badly as as perhaps they could be, given that this seems to be quite a serious move coming from China.
Well, let's look at the wider picture on the share market, because it has been interesting.
I mean, we saw Europe slightly rallying.
U .S. stocks pretty subdued at the opening, but a little bit up.
I mean, how is it playing now that people have begun to, I suppose, get a picture of where they are in this strange time of tariffs?
Yes, indeed. I mean, it does feel like a slightly calmer day compared to the previous couple of weeks trading that we've seen, which have been extremely volatile.
So it just feels like traders and investors are just sort of gathering together all the information.
I mean, there is an improved market mood, but I think it's useful to point out that there is still a lot of uncertainty, although Trump does appear to be walking back some tariffs temporarily or not there is a sense that we're not going to be at the worst -case scenario and that sort of seems to be showing through in the markets at the moment.
And indeed I suppose what we have now is earnings season of course but the earnings are backward -looking and saying in many ways things that may not now be true.
I'm thinking perhaps some of the financial Citigroup interestingly beating estimates on earnings.
Yes this has been really interesting with Citigroup, Bank of America as well they're trading higher on the day They beat expectations.
And going into the earnings season for the banks, there were a little bit of concerns that actually they were expecting to do well, but maybe the outlooks would be too weak for the share price to be able to rally.
But actually, what we've seen is they have had very encouraging results, especially thanks to the volatility in the trading that we saw just at the end of the last quarter.
And that's really helped increase revenue both at Bank of America and Ziti Group.
Yeah, as you say, interesting times.
Keep an eye on things.
We'll see how it all comes through.
So, Vienna, thank you so much for being with us, Fianna Cincozza there of Citi Index. Now, startups are widely seen as the way to boost economic development.
And that is especially so for smaller nations.
But how do you encourage entrepreneurs to locate their startup efforts in your country?
Well, Finland has a project in hand.
building work started in the capital Helsinki and what's expected to become the biggest campus in Europe for startup companies.
The hub, called Maria 01, is set to provide office and event space for all the 6 ,000 entrepreneurs, investors and large businesses that want to collaborate with startups.
Finland's government says it wants to offer the best startup ecosystem in Europe.
Maddie Savage reports from Helsinki.
Yellow diggers are shoring up mounds of earth as construction workers prepare to the foundations for three new buildings at Maria 01, a non -profit hub for start -ups that opened in 2016 and is partly funded by local taxpayers.
Sarita Runneberg is its CEO. Well, right now we are the largest start -up hub in the Nordics, but what we're actually aiming at becoming is that we'll be one of the very, very biggest ones in Europe, if not the biggest one.
So looking at the site now, what will we be able to see when this is finished?
The whole place is really based on community so apart from actually offices so there's going to be a lot of event spaces, a lot of possibilities for people to meet each other and in that sense then also kind of find different kind of resources to grow their businesses.
Finland is a small country with a population of around 5 -1 -1 -5 million.
Yet it's already spawned 12 unicorn startups, businesses worth a billion dollars or more.
That includes several gaming companies and the food -delivery platform, Vault, which was acquired by its U .S. rival DoorDash in 2022.
Finland is committed to becoming a global leader as a start -up and growth company ecosystem and it was stated in the governmental programme two years ago.
Mario Elimarri works for Business Finland, a government agency that promotes investment and innovation.
She provides support and advice to entrepreneurs.
Really, it's not just about rankings.
The real goal there is to create an environment where our ground breaking start -ups can emerge and really tackle the global challenges, and also meanwhile drive growth in the Finnish economy.
One part of the agency's strategy is attracting more global tech talent by offering start -up visas and marketing the country's transparent business culture, abundant nature and free education.
But whether all this is enough for Finland to overtake Europe's more established start -up hubs is up for debate.
Well, I think we have an international comparison, we have high taxes and low salaries.
That's Mikkel Pentakainen, CEO of the Federation of Finnish Enterprises, which lobbies for smaller businesses.
He says the government has recently lost support amongst entrepreneurs after raising a sales tax to try and stabilize public finances, is now 25 .5%, the highest rate in Western Europe.
Plus, The general economic situation that we haven't had growth in the Finnish economy now for more than 10 years.
That's of course causing difficulties for many entrepreneurs.
Are you going to the events this week?
Yeah, I think so. At Maria 01's existing offices, some of the international founders are taking a break There's also a sauna, a big Finnish tradition, and an ice -swimming club.
Most people I've met here are confident hubs like this one can help attract more founders and investments.
But that might create new challenges.
Jack Parker is a British founder who runs a health -tech start -up.
The advantage of the ecosystem right now is this kind of small town, everybody knows each other, so if I reach out to somebody, it's quite likely eight out of ten times that they will respond.
Scaling that up to a large scale, you know, there is the risk of actually losing that element of it.
Another concern is the geopolitical rift between the US and Europe over how to tackle the war in Ukraine.
Finland is on the border with Russia and some fear investors and founders might place their bets elsewhere, if tensions escalate further.
Maddy Savage reporting from Helsinki.
If you want to hear more from her report in Finland, you can go to Business Daily wherever you get your podcast. One note before we go, in the last few moments, Donald Trump has said apparently on Truth Social that China is reneging on its Boeing deal.
Of course, we're covering the issue of China banning the buying of Boeing planes earlier in the programme.
There we are, the struggle goes on.
That's it from World Business Report, from me and the rest of the team, bye -bye and thanks for listening asking the right questions can greatly impact your future especially when it comes to your finances so if you're looking for a financial advisor you can trust. Certified financial planner professionals are committed to acting in your best interest that's why it's gotta be a CFP find your CFP professional at letsmakeapplann .org
