Why European Luxury Stocks Are Taking a Hit — and Why There Could Be More Rough Times Ahead

Europe’s luxury houses are having a tough start to the usually festive holiday season as headwinds with consumers at home and abroad spook investors amid an already volatile market.

On Monday, analysts with the French investment bank Société Générale cautioned in a note to clients that “the third phase of a sector slowdown scenario has just started” for luxury as spending among wealthy shoppers shows signs of slowing in Europe, the Middle East, China and Japan.

Tod’s SpA in particular has taken a beating this month, with shares falling more than 25 percent from their early November highs. The Italian shoemaker has asked investors for patience as it implements new strategies such as more frequent product drops and new store concepts, but many have fled on declining revenues and broader concerns about luxury’s near-term future.

“We should only get a sense of the scale of the downcycle by mid-2019,” continued Société Générale’s Thierry Cota and Antoine Riou. “So when do we move back in? Not anytime soon.”

The specter of a slowdown in China has also contributed to share price decreases at LVMH and Richemont, and while President Donald Trump’s trade war truce with President Xi Jinping initially calmed the industry, the question of whether the two leaders will be able to reach a deal in time for the March 1 deadline still looms large.

Closer to home, ongoing protests and riots in Paris and the threat of a potential debt crisis in Italy are both contributing to mounting investor fears.

The Savigny Luxury Index, which tracks the performance of 18 top luxury stocks, sunk by more than 11 percent for the second month running in November, falling below its initial level at the start of 2018.

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