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Investing.com -- Morgan Stanley has upgraded shares of LVMH and Kering to Overweight, making Kering its new top pick in the luxury sector, while downgrading Hermès and Prada to Equal-weight, citing a “creative supply shock” reshaping the industry.
In a note on Tuesday, the bank said “more Creative Directors are currently debuting at leading personal luxury goods brands than at any point in time over the past 30 years.”
According to Morgan Stanley, this “new burst of creativity” at houses such as Gucci, Bottega Veneta, and Dior has been well received at recent Milan and Paris fashion weeks, leading industry insiders to become “more positive about the industry’s prospects in the medium term than at any point in time over the past two to three years.”
The analysts added that fashion’s “pendulum seems to have started to swing back away from understated, minimalist looks towards more colours and a maximalist aesthetic.”
This shift could lift sales volumes as “consumers often feel encouraged to buy more pieces to layer, mix patterns, or experiment with bold looks.”
While Morgan Stanley said the sector remains in a “hangover” period after years of above-trend growth, it expects 2026 to mark a gradual recovery.
“We continue to anticipate that 2026 will remain below secular trends,” the bank wrote, citing weak middle-income demand and adverse currency moves, but it sees the probability of a “Bull Case playing out for the industry next year” as increasing, driven by creative momentum and potential wealth effects in the U.S. and China.
For LVMH, Morgan Stanley told investors that it sees "important green shoots emerging," with a "fresh creative direction at Dior and Celine already receiving strong industry feedback and Fendi widely expected to announce a new appointment to inject much-needed newness."
Meanwhile, for Kering, the bank believes the "story is starting to change, with several recent developments pointing to a more constructive outlook for the group. A major catalyst has been the arrival of Luca de Meo as CEO in September 2025."
The "shifts suggest Kering is finally beginning to address what we saw as its biggest challenges - stabilising Gucci, executing cost discipline, and managing creative change - while starting to rebuild investor confidence," added the analysts.