A warning from the chairman of Cartier-owner Richemont that stubborn inflation was starting to affect demand in Europe prompted a swoon in luxury stocks last week. That downbeat message added to a string of worrying economic signals from China and signs of softer trends in the US.
“What we are seeing on luxury is the end of a consensual ‘long,’” said Gilles Guibout, a portfolio manager at Axa Investment Managers in Paris, referring to a rush by investors toward this sector in the first half of the year. “Europe is typically very sensitive to world growth and this is hurting luxury as there is evidence of a slowdown.”
And soaring bond yields have proved bruising for a group of companies which, like technology firms, relies heavily on capital for expansion and benefits from low interest rates. Benchmark US Treasury yields hit the highest level since 2007 in August, dealing a further blow to sentiment on the stocks.
Bruno Vacossin, a Paris-based senior portfolio manager at Palatine Asset Management, said this is a good time to trim holdings and lock in gains. “I don’t think that the drivers of luxury stocks are broken but simply, the growth trend is weaker,” he said. HSBC Holdings Plc analysts broke ranks this week as they cautioned that third-quarter results in luxury are likely to be “soft.” Spending on luxury items in Europe has only recovered to 41% of August 2019 levels, they said, with constraints around flight capacity and visas limiting tourist numbers and adding to local headwinds.
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