Shares of European luxury goods companies are rebounding as investors pin their hopes on potential economic stimulus measures in China and a positive outlook in the United States.
After a challenging year, optimism is returning to the sector, spurred by Beijing’s recent efforts to support its economy. As a result, luxury stocks are on track for their best month since February. A Goldman Sachs index tracking the luxury sector has risen more than 8% in December, narrowing its year-to-date losses to just 1%.
Chinese consumers, who account for nearly 15% of the global luxury market, remain a key driver for the sector. Any additional stimulus from Beijing could further boost demand, leading to a potential rally in luxury stocks. Meanwhile, in the US, expectations are growing that proposed economic deregulation and tax cuts by former President Donald Trump could stimulate consumer spending and further benefit luxury brands.
“For many luxury companies, China and the US remain the primary short-term growth drivers,” said Dora Buckulčíková, a portfolio manager at Robeco Switzerland. “We are optimistic about both markets, even though the timing of a full recovery remains uncertain,” she added in an interview.
Despite the positive outlook, this year has been tough for LVMH Moët Hennessy Louis Vuitton (LVMH), the world’s largest luxury goods company. LVMH, which was Europe’s largest listed company until recently overtaken by Novo Nordisk, has seen its shares drop by 14% in 2024. This marks the company’s worst performance since the global financial crisis. The stock now trades at 22 times its 12-month forward price-to-earnings ratio, down from the average of 25 times since 2018.
On a more positive note, luxury fashion brand Brunello Cucinelli raised its revenue forecast last week, with analysts attributing the strong performance to the company’s exposure to the US market.
“Recent results from some well-positioned companies, particularly in the US and European markets, have shown improvement,” said Giles Rothbarth, co-head of European equities at BlackRock Fundamental Equities. “If consumer confidence continues to rise, along with higher wages and the post-election ‘animal spirits’ in the US, luxury brands could see further support,” he added.
However, the sector still faces significant challenges. The US-China trade war remains a potential risk, and in China, some consumers are becoming more cautious, questioning the value of high-end goods amid economic uncertainty and concerns over job security. Additionally, rising prices for luxury items have dampened demand.
“Luxury fatigue is setting in, with consumers increasingly questioning the value proposition of some brands. We believe a full recovery may not come until 2026,” said Zuzanna Pusz, an analyst at UBS Group in London.
The divergence in share prices within the sector further reflects a cautious investment environment. Stocks of companies undergoing a major turnaround, such as Gucci-owner Kering, Salvatore Ferragamo, Burberry Group, and Hugo Boss, have all fallen by more than 30%. In contrast, companies focused on the wealthiest consumers, such as Hermes International and Brunello Cucinelli, have seen their shares surge by nearly 20%.
Experts advise investors to be selective when choosing luxury stocks, given the sector’s ongoing volatility and the varied performance of different companies.
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