A gauge of top luxury stocks in Europe fell to seven-week lows on Wednesday as a selloff in the sector continued following a strong run this year that has been key for positive returns across broader European markets.
The fall comes amid growing concerns over a slowdown in luxury demand in the United States, although investors remained upbeat over the outlook for the key Chinese market as the world’s second largest economy reopens from pandemic lockdowns.
The STOXX Europe Luxury 10 (.STXLUXP), which tracks top luxury goods makers including heavyweight LVMH (LVMH.PA), was down 1.5% by 0914 GMT, adding to a 4.3% fall on Tuesday, its biggest daily drop since March 2022.
Following meetings at an industry conference in Paris, Morgan Stanley analysts said the sector’s weakness was not fundamentally driven. They added that luxury executives were “largely pointing to a continued moderation in trends in the US compensated though by robust trends elsewhere”.
“Management teams (are) still pointing to a soft landing, with no dramatic slowing,” they wrote in a note.
After hitting a lifetime high earlier in May, the luxury index is still up more than 20% so far this year, even accounting for this week’s slump. The sector’s valuation premiums have reached record levels and analysts believe earnings growth is key for any further gains in the sector.
“With valuations being as high as they are, there is less room for error for these companies,” said Jelena Sokolova, analyst at Morningstar.
Carlo Benetti, market specialist at GAM Investments, said exposure to luxury remained key to a well diversified portfolio, given strong prospects for a recovery in Chinese spending.
“Expectations of a 25-30% recovery in Chinese luxury consumption in 2023 seem too conservative, especially in light of the robust recovery in Chinese travel expected at the start of the warm and holiday season,” he said.
“The ‘revenge spending’ phenomenon is far from exhausted, consumer appetite for luxury remains strong, and the Chinese travelling consumer is the key to the recovery,” he added.
LVMH, the most valuable listed company in the region, fell 1.7% in Paris after a 5% drop on Tuesday. Top decliners in the sector were UK’s Burberry (BRBY.L), along with Italy’s Cucinelli (BCU.MI) and Ferrari (RACE.MI), all down more than 2%.
