Thomas Lyons Luxury goods shares have taken a hit, wiping out over €28bn from the sector, after a blistering rally this year powered by international demand, particularly from China. Shares in Hermes fell as much as 5.5%, while LVMH Moet Hennessy Louis Vuitton and Gucci-owner Kering saw their shares decline by more than 4% and 2%, respectively. The high-flying sector has become to the European stock market what Big Tech is to the US, with dominant businesses whose growth has held up even as the economy waxes and wanes. Confidence in that view has now been dented, however, with attendees at a luxury goods conference in Paris organised by Morgan Stanley flagging a “relatively more subdued” performance in the US, according to Edouard Aubin, an analyst at the investment bank.
That reflects “weakness in the aspirational consumer in particular”. But that was counterbalanced by more buoyant demand elsewhere, according to Morgan Stanley. “Overall, we found corporate commentary resilient, pointing to an ongoing soft landing in the US largely offset by strength in other markets,” it said. Both Asia and the US are important markets for European luxury companies. Asia, excluding Japan, accounted for 30% of LVMH’s sales in 2022, while the US made up 27%, according to the company’s annual report.
Deutsche Bank analysts have also said a slowdown in the US is now a growing concern. While the rebound in Chinese demand has been among the key drivers of strong sales, investors are likely to be picky from here on, they added. Still, luxury stocks have been outperforming by a large margin this year: LVMH is up 25% and Hermes has added 34%, both outperforming a 10% rise in the broader Stoxx Europe 600 Index.
“The luxury sector remains a crowded one for many investors, with the sector’s premium to the market at historically high levels,” Deutsche Bank analyst Matt Garland said. The rally has seen LVMH balloon in size.
