Luxury stocks are trying to rebound after the heavy losses of the last few days. The positive trail started from New York, where Tiffany it gained almost 1%, and it is also continuing in Milan, Paris and London where the giants of the sector are trying to raise their heads, casting behind them the gloomy clouds that have gathered over luxury in recent weeks.
In Milan Moncler e Salvatore Ferragamo respectively +0,7% (after having reached a maximum of +2%) and +1%. He runs in Paris Kering (+3,4%), it also goes up lvmh (+1,3%), however, the stock is struggling to take off Hermes (-0,8%). +0,95% per Burberry in London.
If we dwelled only on today's trend, therefore, apart from a few exceptions, the luxury sector would appear to be in excellent health. The problem is that it is not known if and above all how long the newfound feeling with investors will last by virtue of the news that has emerged in recent weeks. In fact, by extending the reference time horizon, the plus signs are transformed into minus, sometimes even in double digits.
LUXURY TITLES BETWEEN LIGHTS AND SHADOWS
In Italy the most striking example is precisely Moncler which, until a few weeks ago, seemed to be galloping at full speed towards new records, even prompting Kepler Chevreux analysts to further raise the rating from hold to buy with a price target of 41 euros (today it trades at 31,8 euros) . On the other hand, observing the performance that the stock has achieved in the last two years, nothing let us predict the turnaround in October: +58,8% in 2017, +29,39% in one year. All positive in appearance. The perspective changes if we take into consideration that Moncler's performance since the beginning of the year was close to +50% up until a few days ago, but in the last month the stock has lost more than 16% (Borsa Italiana data), among the worst performances achieved in global luxury stocks. Double-digit monthly losses also for Kering in Paris (-12,4%), while the other stocks show declines of between 6 and 8 percent: -7,91% for Salvatore Ferragamo, -7,42% for Hermes , -6,74% for Lvmh. In London, Burberry fell from 2.112 to 1.740 pounds per share, while the price of the Tiffany stock fell from 124,7 to 111,4 dollars.
The session of Wednesday 10 October, the day in which the entire luxury sector went down the drain under the blows of Morgan Stanley and in the wake of worries about China. Two factors, among other things, doubly linked.
MORGAN STANLEY AND CHINA
“Luxury goods: no longer in fashion”. This is the title of the report published on 9 October with which the American investment bank crushed hopes for the future of the sector without appeal, communicating at the same time the decision to cut the rating on luxury stocks to "underweight". “Despite the recent sell-off it's not too late to sell out the European luxury sector”, advised Morgan Stanley without risk of misunderstanding to international investors.
What prompted the US broker to issue such a merciless judgment? The feeling that the Chinese have "lost their passion for shopping". In fact, Beijing absorbs a third of the global supply of luxury e the confidence of Chinese consumers it is historically considered one of the most important indicators for evaluating and forecasting the trend of luxury goods. According to the MS this confidence would have reached its peak and from now on it could begin its downward spiral.
The reasons behind this new trend are many: from the difficulties of the Shanghai Stock Exchange, which lost 20% of its value in the last year due to the trade war with the US, to the weakness of the yuan against the dollar. In the last period there has also been the strong strengthening of border controls on tourists returning to China from Europe and the rest of Asia, favorite destinations not only for monuments but also for shopping, which is acting as a deterrent to purchases.
However, there is something else that weighs on the "destiny" of luxury, according to Krupa Patel, number one analyst at Morgan Stanley: the international situation – characterized by the war on tariffs and a general slowdown in growth – would no longer allow stocks that already have very high valuations, such as those in the sector, to continue to appreciate. It is better for investors to focus on "value" stocks, which are more balanced and solid even if with less attractive earnings prospects.
Summing up, Morgan Stanley has no doubts: luxury stocks need to be sold.
LVMH DATA
An implacable judgement, which triggered sales on international stock exchanges, despite the fact that they arrived 24 hours later positive signals from a giant like Lvmh which, by publishing the results for the first nine months of 2018, announced a growth in revenues to over 33 billion (+10%) and a positive performance in all geographical areas of reference. However, the indications did not convince the market which concentrated instead on the more cautious forecasts that the giant led by Bernard Arnault gave for the entire year due to "an uncertain geopolitical and monetary context".
In short, luxury seems to have lost part of that "sparkle" which previously had allowed it to become one of the sectors preferred by international investors. Today's trend comforts the companies a little, but the doubts about the future of remain many and worrying.
