Khaberni - European luxury goods companies face a sharp wave of volatility in their stocks, with increasing hedge fund bets and growing fears of disruptions in the US stock markets linked to the AI sector, at a time when the sector is still struggling to recover from a two-year slowdown.
Sales of luxury bags and designer clothing at prominent brands such as "Dior" and "Gucci" have declined after the post-pandemic boom, as investors await clear signs of growth resumption.
LVMH Group, the world largest luxury goods company with a market capitalization of about 260 billion euros, experienced its biggest daily drop since 2020 late last month, after its CEO Bernard Arnault adopted a cautious tone about the outlook for the current year, dispelling hopes for a quick recovery, according to a report by "Reuters Business".
A previous update in October had caused the stock to rise 12% in its best daily performance in more than two decades.
Conversely, Kering's stock, which owns the Gucci brand, jumped 11% last week, after its fourth-quarter revenues fell less than expected, and its new CEO Luca de Meo spoke of "early and fragile" signs of recovery.
Intensified bets increase volatility
According to data from Hazeltree, a company specializing in tracking hedge fund positions, luxury stocks were among the most exposed to short selling ahead of the earnings season. An increase in short positions can magnify price movements, as short sellers quickly have to cover their positions when results are better than expected.
Investors believe that the dominance of multi-manager funds trading based on news and data has heightened volatility, amid a decline in stocks available for trading due to the spread of passive investment through index funds.
"AI bubble" risks
Luxury companies are heavily dependent on the spending of the wealthy, making them sensitive to the performance of the US stock market, which had seen a strong rise driven by AI stocks before entering a phase of sharp volatility.
De Meo warned that any sharp correction or possible burst of the AI bubble could negatively reflect on US consumer spending, considering that the financial market represents a "thermometer" for the consumption of luxury goods in the United States.
Despite these fluctuations, some investors maintain a long-term view, pointing out that the sector is going through a difficult economic cycle but is working to overcome it.
As investors shift between company stocks searching for recovery opportunities, Hermès, known for its “Birkin” bag, only rose 2.5% after announcing strong new results, noting that the stock trades at a price-to-earnings multiple of about 45 times, more than double the valuation of LVMH.
Analysts confirm that subtle variances in performance between companies, at a moment described as a "fragile turning point", are sufficient to cause significant price movements in a sector facing a dual test between demand slowdown and global market volatility.
