Tuesday, 21 May 2024 Reading time : 2 minutes

The luxury goods sector is generally considered to be crisis-resistant, as it can count on a solvent and loyal clientele that is hardly affected by economic or geopolitical turbulence. Shares in jewellers, luxury watchmakers and designer handbags are therefore popular with investors. However, the past few months have shown that luxury brands are not completely immune to market dynamics. This is reflected in the performance of luxury goods stocks, which have performed rather modestly compared with the past. 

This is illustrated by the Stoxx Europe Luxury 10 index, which comprises the shares of ten leading European luxury companies, including LVMH, Hermès and Kering. Within a year, the barometer has lost around 3%. Over the same period, the European market, as measured by the EuroStoxx 50, has generated a total return of almost 22%, while the US benchmark index S&P 500 has gained around 30%. This modest performance of the luxury goods stocks is unusual, as a look at the past shows. Over the past five years, the Stoxx Europe Luxury 10 Index has generated a total return of 110%, clearly outperforming the European market (EuroStoxx 50: +76.4%) and the US market (S&P 500: +102.1%). The outperformance over eight years (data available as of 20 June 2016) is even clearer, with the luxury goods index up more than 270% (Euro Stoxx 50: +123% / S&P 500: +193%).

Adjustment after exceptional years
The uncertain growth prospects for the luxury goods sector are currently a source of caution among investors. "After two years of outstanding post–Covid-19 rebound, defined by double-digit growth rates, the sector saw quarterly growth progressively decelerate back to low single-digit rates," analysts at US consulting firm Bain & Company write in their latest market study on the global luxury sector. While such growth normalization was predictable, not every luxury company was able to anticipate and successfully navigate this trend, according to the analysis.

Business conditions are further complicated by the market situation in China, where demand has not yet fully recovered from the setback caused by the coronavirus crisis. The People's Republic is one of the most important markets for the luxury industry. Analysts at Barclays estimate that members of the Stoxx Europe Luxury 10 index generate around a quarter of their profits in China. Accordingly, there were high hopes at the beginning of 2023 that the industry would be able to benefit from an economic upturn in China following the end of the zero-Covid strategy. However, this has not materialised: the Chinese economy grew by only 5.2% last year – if the crisis years of 2020 to 2022 are excluded, growth was weaker in 1990, according to data from the International Monetary Fund. Luxury houses are feeling the effects: "China’s luxury market has experienced a rebound, although it’s not yet back to the historical high of 2021," says Bain & Company. "This can be attributed to factors such as low consumer confidence and a slower-than-expected economic recovery."

Outlook: Growing importance of China
Despite the challenging business environment, Bain & Company estimates that the global luxury goods market grew to EUR 1.5 trillion last year, which is a new record and represents an increase of 8% to 10% compared to 2022. The consulting company expects the global luxury market to continue to grow until 2030, although annual growth rates will be more moderate at 4% to 8%. Chinese consumers will remain central to the luxury industry and are likely to become even more important in the future. According to Deloitte, the Chinese will account for around 40% of global luxury spending by 2030. This compares with China's market share of 17% in 2018. Investing in the equities of luxury goods companies therefore also indirectly exposes investors to China. 

Investing in the global luxury goods sector
The ZKB tracker certificate on a luxury basket gives investors easy and efficient access to the global luxury goods market. The selection comprises the shares of 16 companies that offer their products in the premium and luxury segment, each with a weighting of 6.25%. Investors participate 1:1 in the performance of the basket of equities, which has a maturity of three years. The selection consists of companies that offer clothing, accessories, jewellery, watches and sports cars in the luxury segment. The corporates are mainly based in France and Italy, but sell their products to customers worldwide.

Product overview

Termsheet (Valor 121825234)

Factsheet (Valor 121825234)

 

Disclaimer
This communication is for marketing purposes. It is neither an offer nor an invitation to submit an offer, to purchase or to subscribe to securities and does not constitute investment advice. You should consult your advisors before making an investment decision. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, financial condition, development or performance of the issuer to be materially different from any future results, financial condition, development or performance expressed or implied by such statements. The present document has not been drawn up by the research department as defined in the rules of the “Directives on the Independence of Financial Research” published by the Swiss Bankers Association, hence these rules do not apply to this document. If securities are mentioned in the communication, the base prospectus, the final terms and any key information document may be obtained free of charge from Zürcher Kantonalbank, Bahnhofstrasse 9, 8001 Zurich, VRIS, and from www.zkb.ch/finanzinformationen.