European luxury stocks, including LVMH (EPA:LVMH), Kering (EPA:PRTP), Richemont, and Burberry Group (OTC:BURBY) Plc, experienced a decline on Tuesday. This downturn follows a warning issued by Morgan Stanley analysts about a potential slowdown in the demand for high-end handbags and jewelry in China and Europe.
The shares of LVMH dipped up to 2.3%, marking an overall decline of approximately 22% from the year's peak. Similarly, Richemont saw a drop of up to 3.3%. The downward trend extended to Kering and Burberry Group Plc , which also witnessed their shares lower.
This market response was triggered by Morgan Stanley's team of analysts, led by Edouard Aubin, revising their growth forecasts for the latter half of the year for most luxury brands. They also adjusted their profit predictions for 2024 downwards due to indications of weakening demand in China during the summer months and a softer market in Europe.
Despite recent declines pushing the luxury sector towards what is known as 'value territory', Aubin cautioned against purchasing stocks now. He anticipates a weak exit rate for the quarter, which he believes will fuel discussions around demand normalization.
Morgan Stanley's views echo those of other analysts who have recently expressed bearish sentiments towards the luxury sector. Earlier this month, Barclays analyst Carole Madjo downgraded her recommendation on LVMH while the firm shifted its outlook on the sector from positive to neutral. Deutsche Bank’s European equity strategists also downgraded the consumer products sector due to luxury brands' exposure to China. Analysts at Jefferies and Goldman Sachs Group Inc (NYSE:GS). anticipate turbulent times ahead.
In addition to these changes, Richemont was downgraded to equal-weight from overweight by Morgan Stanley’s Aubin. In contrast, he upgraded Prada (OTC:PRDSY) from equal-weight to overweight. Price targets for LVMH, Kering, Moncler SpA (BIT:MONC), and several other luxury stocks were also revised downwards by the analyst.
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