Currently very few segments of the global equity markets show higher strenght than luxury.
In the last week, thanks mostly to the encouraging news coming from China and the US, which appear to be more willing to settle their trade disputes, mrkets have extended their 2019 rally.
Unsurprisingly so far into 2019 the top performer award goes to the Chinese stock market. Albeit we are talking about a very limited and statistically not significant time series it is nonetheless interesting to notice how many luxury stocks in recent times have displayed a high correlation with Chinese stocks, mimicking their rally in a comparable way.
All in all it us an unsurprising development given the importance of the Chinese economy in this sector, which also relies heavily on the smooth working of the global trade system. As a consequence the biggest luxury groups have all over-performed their local benchmarks and the global ones.
The recent rally though has extened even to companies thata didn’t fare as well recently. All this shows how luxury heavyweights remain one of the top picks to gain exposure to the emerging markets rally, which in turns tend to amplify the global cycle, without quite a few of the risks involved in the aforementioned asset class. .
From a certain point of view we can say that luxury stocks have assumed the role of typical growth stories , firmly in the hands of the internet and IT giants up until recently.
This has brought also a less than desirable characterstic: conspicuous valuations. On the other hand the broader rally is leading to a significant rotation in favour of stocks that performed in a less stellar way in the past few months.
Investors though should not forget that comparing even only to a few weeks ago the margins of further significant positive returns are smaller and less certain.
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