The big bet on luxury stocks stumbles on inflation, China woes

And soaring bond yields have proved bruising for a group of companies that, like technology firms, relies heavily on capital for expansion and benefits from low interest rates. Benchmark U.S. Treasury yields hit the highest level since 2007 in August, dealing a further blow to sentiment on the stocks.

For other investors, the sector’s high valuations leave little tolerance for any disappointments. The MSCI Europe Textiles Apparel & Luxury Goods Index trades at 24 times projected earnings, above its historical averages and a massive 90-per-cent-plus premium to benchmark indexes. “I don’t think that the drivers of luxury stocks are broken, but, simply, the growth trend is weaker,” he said.

“Many brokers have revised their target prices and I think that the consensus was a little too high,” Vacossin said, adding that he has reduced his positions in LVMH and Hermes International SCA. Those two companies, like Moncler SpA and Swatch Group AG, are expected to post double-digit growth in their current reporting years.

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