Deutsche Bank has struck a cautious tone on the European luxury goods sector, warning that ongoing trade tensions and weakening demand in China could keep a lid on share price gains this year.
The note, published this week, points to growing headwinds facing the industry — from Donald Trump’s new tariff regime, which threatens to disrupt global supply chains, to signs of softening appetite among high-end consumers in key Asian markets.
The German bank also flags risks around US monetary policy, slower discretionary spending in Europe, and currency fluctuations, all of which could weigh on earnings.
While UK-listed exposure is limited, Burberry Group PLC (LSE:BRBY) is one of the German outfit's top picks.
That said, wider the sector remains closely watched by British investors. And Deutsche's analysts say the strong share price recovery seen earlier in the year now appears overdone.
Names like LVMH, Richemont, and Kering, which had bounced back sharply on optimism around China’s reopening and resilient demand in the US, now face a tougher environment.
Volumes have plateaued, inventories are rising, and promotional activity has crept back into the market, suggesting that demand is becoming more fragile.
Although the bank continues to see long-term appeal in the sector due to brand strength and high margins, it believes the risk-reward balance has shifted.
A more volatile and rangebound year is in prospect, the analysts write, adding that earnings upgrades are unlikely unless consumer spending surprises on the upside.
For now, Deutsche Bank advises a selective approach. It prefers companies with strong pricing power, diversified regional exposure, and less reliance on China - a list that includes Hermès and Moncler, while Burberry’s positioning appears more exposed to softer global trends.