JPMorgan remains cautious of the luxury sector heading into 2025, citing persistent macroeconomic challenges in China and muted pricing and mix conditions.
Reflecting these concerns, the investment bank lowered its estimates for Burberry Group PLC (LSE:BRBY) and downgraded both Kering and Swatch to ‘underweight’ ratings.
A brighter outlook is anticipated for the US consumer, but this is not expected to offset weakness in the Chinese cluster.
"2024 was a year of no growth for the sector, partly driven by macro weakness in China, but also partly reflecting, in our view, consumer fatigue on high pricing and high volumes,” JPM analysts wrote in the research note.
Things look incrementally better in the year ahead, with analysts stating: “Looking into 2025, with price and mix largely capped and with a question mark on volumes, we anticipate soft industry growth dynamics, forecasting around 2% growth for the sector overall.”
The global downturn in luxury spending has battered valuations across Europe’s luxury set in 2024.
In the UK, Burberry dropped out of the FTSE 100 after its share price flopped to a 14-year low, while LVMH fell more than 17% and Kering a full 44%.
But with JPM’s downgrades on Burberry and Kering SA (EPA:KER), there could be room to fall even further.
On the other hand, JPM sees a buy opportunity with Pandora given its ‘hard luxury’ focus.
“We see jewellery at a healthier juncture than soft luxury and hence believe it is likely to be the other bright spot for 2025,” said the bank.