A painful relity check

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Last week was quite challenging, if not downright disastrous, for luxury stocks. In our chart it can be seen how  only 3 out of 20 stocks managed to close in the green for the week. Obviously the new round of the trade war involving the US and China, where tariffs have been hiked from 10% to 25% on 200 billions of Chinese goods, was the dominant theme. The recent developments provide a textbook case of luxury stocks behavior during risk-off phases: when things go south they do loose way more than their respective benchmarks. Actually in a plethora of cases the recent losses started to look like  a correction.

Investors should learn a fundamental lesson from what has happened: as a matter of fact substantial risks DO exist in this segment of the market, particularly after an intense bull market that pushed in quite a few cases valuations to a fairly high level. On top of that if China, by far the largest luxury market in the world,  happens to be the primary source of concern for the global economy the effect is bound to be magnified. It comes as no surprise that the high-end car segment suffered a particularly nasty trimming as there’s a substantial risk this sector might end up right in the middle of the trade storm.

On the other hand some remarkable exceptions were noticeable: Ferrari stock saw a very nice spike, riding high on the back of excellent quarterly results. Moncler crawled back up strongly last Friday (+3,3%) , again after releasing strong Q1 numbers.

So what lies ahead ? Investors should always keep this in mind: it is very unlikely, if not downright impossible, the high beta of luxury stocks during bull runs would translate into more defensive features when the environment is more challenging. Essentially luxury is a bet on the ongoing process of global growth. A process that lifted hundreds of millions out of poverty in the last few decades, opening up enormous new markets for companies offering high-end products. If this process  come to a halt or even significantly slow down, luxury companies will suffer enormously.

CompanyPerformance YTDstock market 
Ferrari43.70%Milanoup
Tiffany30.23%New Yorkdown
LVMH 29.18%Parisdown
Christian Dior27.40%Parisdown
Moncler 26.75%Milanodown
Estee Lauder 26.33%New Yorkdown
Hermes 25.54%Parisdown
Kering23.20%Parisdown
Ralph Lauren20.11%New Yorkdown
Porsche 15.38%Frankfurtdown
Richemont 12.98%Zurichdown
Capri/Michael Kors12.84%New Yorkdown
Burberry10.72%Londondown
Ferragamo9.63%Milanodown
Tod's3.30%Milano down
Brunello Cucinelli2.77%Milanodown
BMW-2.59%Frankfurtdown
Tapestry/Coach-4.44%New Yorkup
Prada-7.56%Hong Kongup
Tesla -28.03%New Yorkdown

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