European luxury stocks including LVMH and Gucci owner Kering SA fell as a wave of Covid infections in China weighed on sentiment — extending a rout that’s wiped about $56 billion from the sector over the past two days.
Shares in Birkin bag maker Hermes International and UK trench coat company Burberry Group Plc also declined, with concerns about China — a key market for luxury companies — adding to worries about a possible economic slowdown in the US. China expects to see Covid infections peak at about 65 million a week toward the end of June.
This week’s slump follows a great year for the sector, with many luxury companies posting stellar results in the latest earnings season.
“Luxury specifically may be affected by the perception that there are few near-term catalysts after a strong run of performance,” said Swetha Ramachandran, lead manager of the GAM Luxury Brands Fund. The sector “is caught in the middle of a selloff in quality growth stocks.”
Luxury stocks have outperformed year-to-date, with share-price gains of more than 30% for Hermes and more than 20% for Richemont, the Swiss jewelry maker that owns the Cartier brand.
“The aggregate sector valuation looks rich relative to history,” Rogerio Fujimori, an analyst at Stifel, wrote in a note on Wednesday. “We still see the sector moving sideways until US macros improve.”
Today’s decline follows a slump on Tuesday after analysts at Morgan Stanley highlighted that companies attending a luxury conference in Paris were “relatively more subdued” about their performance in the US.
--With assistance from Michael Msika, Julien Ponthus and Chiara Remondini.
