Investors feel less pain following a year marked by worries about declining demand in China, the world’s largest market, thanks to a December comeback in European luxury goods stocks.
With multiple rounds of stimulus in China aimed at revitalizing the world’s second-largest economy, optimism is returning, putting shares of luxury goods manufacturers on track for their highest month since February. In December, a Goldman Sachs Group Inc. basket that tracks the industry saw an increase of more than 8%, bringing its year-to-date decline to just 1%.
The sensitivity of investors to China, whose customers make up over 15% of the global luxury market, is demonstrated by these green shoots. A surge like the one in September that soon ran out of steam was sparked by the Asian country’s recent indication of additional stimulus measures.
Donald Trump’s intentions to de-regulate the economy and lower taxes could boost spending in the US, which is another anticipated windfall for luxury demand next year.
“For many luxury companies, China and the US remain key catalysts for the short-term,” said Dora Buckulčíková, a portfolio manager at Robeco Switzerland Ltd. “We are positive on both” even as the exact timing of the turnaround is “still uncertain,” she said in an interview.
Investors are counting on a recovery in the United States in 2025, where the president-elect has contributed to a rise in the dollar and stock market. Brunello Cucinelli SpA increased its revenue growth estimate last week, indicating a benefit from the company’s exposure to the US market. This is the latest indication of strong demand at the upper end of the luxury spectrum.
“More recent company results have shown an improvement for some well-positioned companies in the US and European market,” said Giles Rothbarth, co-head of European equities at BlackRock Fundamental Equities. “A continuation of this trend, supported by improved consumer confidence, higher wages, and particularly in the US the post-election ‘animal spirits’ could aid luxury companies from here.”
However, there are still issues facing the industry. Trump’s return to the White House could cause a trade war, while in China, customers are abandoning bling as economic downturns cut short a post-pandemic indulgence. The desire for luxury products has also been impacted by rising pricing.
“Signs of ‘luxury fatigue’ with consumers increasingly questioning the value for money offered by some brands suggest to us that a potential recovery may come only in 2026,” said Zuzanna Pusz, an analyst at UBS Group AG in London.
Additionally, divergent share prices indicate caution. In particular, investors have shunned businesses that are planning a turnaround. Hugo Boss AG, Burberry Group Plc, Salvatore Ferragamo SpA, and Kering SA, the company that owns Gucci, have all seen stock declines of over 30%. On the other hand, the valuations of some companies that serve the wealthiest customers, like Cuccinelli and Hermes International SCA, have increased by almost 20%.
Given that the future of luxury stocks is unlikely to be clear-cut, some people believe it’s crucial to exercise discretion.
“I definitely wouldn’t be buying luxury as a whole,” said Marcel Stotzel, a portfolio manager at Fidelity International. Stotzel sees 2025 as a “transitional year” for the industry, with any bets of a “big recovery” hinging on a revival in US demand, he said in an interview.
