Investors Find Europe’s Luxury Stocks Losing Luster

Europe's luxury brands may have dazzled at Paris Fashion Week, but investors are questioning their appetite for these shares amid a Chinese economic slowdown and interest rate uncertainty, Lucy Raitano and Mimosa Spencer reported for Reuters.

The STOXX Europe Luxury 10 index has just experienced its largest quarterly decline since 2020.

Despite a strong start in 2023, driven by hopes of a significant boost in Chinese sales after three years of lockdowns and a post-pandemic US spending surge that showed little sign of slowing, the STOXX Europe Luxury 10 index has just experienced its largest quarterly decline since 2020.

Over $175 billion in market value has been wiped from these 10 stocks since the end of March. China's recovery has been turbulent, with slowing growth, while in the US, high inflation and rising interest rates are causing consumers to tighten their budgets.

"The sector has experienced a significant decline in the last 2-3 months due to a combination of rising interest rates, investor positioning, and anticipation of earnings reductions," said Bernard Ahkong, co-CIO at UBS O'Connor Global Multi-Strategy Alpha.

Although the luxury "Big 10" index remains up by 20% year-on-year, the third quarter marked its worst quarterly performance on record compared to the STOXX 600, which only fell by 2.5%.

Ahkong and Peter Garnry, head of equity strategy at Saxo Bank, both pointed to growing concerns about the outlook for luxury consumption in the US, Europe, and China.

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