Last weekâs China-fuelled rally in luxury-goods stocks is based on unstable foundations, according to Goldman Sachs Group Inc. analysts.
Stimulus measures announced by the economic giant are unlikely to have a positive impact on high-end discretionary spending in the near term, Goldmanâs Louise Singlehurst wrote in a note on Tuesday, downgrading Gucci-owner Kering SA to sell.
âWe expect a difficult six months ahead for the luxury peers,â the analyst wrote. âThe appetite to purchase high-end discretionary goods is dependent upon the health and confidence of the consumer.â
This sentiment was echoed by HSBC Holdings Plcâs Erwan Rambourg, who said on Tuesday that the road to a recovery in Chinese luxury consumption âwill be long.â
Despite last weekâs gains, a Goldman Sachs basket of European luxury goods makers remains down 16 percent since reaching a peak in mid-March.
Goldmanâs Singlehurst is particularly cautious on companies in the middle of a turnaround, like Kering, whose shares have slumped 37 percent this year. While the analyst is positive on Gucciâs plans to reposition its portfolio to a more âevergreenâ style, earnings visibility could take a hit.
âIn the current market environment where store traffic is depressed and consumer confidence is soft, particularly in China, we see this is a difficult ambition to achieve,â Singlehurst added.
By Kit Rees
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Kering SAâs stock plunged to a seven-year low on Monday, with analysts downgrading the Gucci owner amid concerns over weak demand in China, marking a sharp decline in the luxury sector.
