Investor pessimism toward luxury stocks has reached a multi-year high

Investor sentiment towards shares of European luxury goods manufacturers is now the most pessimistic for several years, analysts at UBS, Switzerland's largest bank, have warned. According to their calculations, the war in the Middle East may postpone the long-awaited recovery in demand.

Signs of stabilization that appeared in the fourth quarter of 2025 and in the first weeks of 2026 have been replaced by concerns that geopolitical turmoil will put pressure on the profits of luxury goods producers, the bank said in a note quoted by Bloomberg. Businesses fear that rising energy prices and lower consumer confidence could hit demand for luxury brands, UBS analysts said.

Investors are in no hurry to increase the share of luxury brands' shares in their portfolios due to the poor predictability of the situation, the bank says. At the same time, it emphasizes that the sector is now trading at a discount to its five- and 15-year averages relative to the MSCI Europe index. The index of luxury companies, compiled by UBS, has fallen by 17% since the beginning of the year and approached the levels of April 2025 - then US President Donald Trump announced the introduction of duties on imports.

"Lingering uncertainty is likely to continue to weigh on corporate earnings and lead to fresh downward revisions to consensus forecasts. That said, investor sentiment is now, in our view, among the gloomiest in recent years, leaving room for positive surprises," UBS said in a note.

Amid geopolitical tensions, investors are becoming more selective, the bank notes, with some betting on companies considered more resilient, such as Hermès and Ferrari, while others prefer betting on a possible business turnaround, such as Kering (owner of Gucci) or Burberry.

The Middle East remains the fastest growing market for the luxury industry, Bloomberg recalls. However, the region's economies may be seriously affected by the war: Goldman Sachs economists warn that if the conflict in Iran continues at least until the end of April, the GDP of Qatar and Kuwait may fall by 14% this year, and the economy of Saudi Arabia will also suffer, the agency says.

This article was AI-translated and verified by a human editor