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.”
LVMH CEO Bernard Arnault’s status as the world’s wealthiest person has been a high-profile casualty of the 15% slump in an MSCI Inc. index of luxury stocks since mid-July. Arnault’s wealth has dropped from an all-time high of $212.4 billion to $170.4 billion as of Sept. 7. Still, the French businessman has continued a history of purchasing shares in LVMH, buying about €215 million worth of stock since late July, according to regulatory filings.
Along with worries about Europe’s misfiring economy, where activity is fading while price pressures persist, and a seemingly endless stream of bad news out of China, the latest US earnings season has served up evidence of weakening consumer patterns. In the face of this, analyst projections for luxury companies still look over optimistic to some investors.
What’s more, technical analysts point to signals suggesting there is a risk that the descent for LVMH and its luxury peers could get worse.
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