(March 16): Investors have adopted the most pessimistic outlook on European luxury stocks in years as the war in the Middle East threatens to delay a long-expected rebound in demand, according to UBS analysts.
Signs of stabilisation in the final quarter of 2025 and opening weeks of this year have given way to fears that geopolitical shocks will weigh on earnings, analysts including Zuzanna Pusz wrote in a note Monday. Companies fret that higher energy prices and reduced consumer confidence could hit demand, the analysts said.
Investors are reluctant to increase exposure to luxury stocks due to the lack of visibility, even though the sector is now trading below its 5- and 15-year averages versus the MSCI Europe, they said. A UBS industry basket has fallen 17% this year and is close to levels last seen in April 2025 when US President Donald Trump announced sweeping tariffs.
“Prolonged uncertainty is likely to continue weighing on earnings and drive incremental consensus downgrades. Investor sentiment appears, in our view, the most bearish in years, potentially leaving scope for positive surprises,” wrote the analysts.
UBS cited “crowding” statistics on long and short trades in luxury stocks. The figures combine prime brokerage information, stock loan data, 13F regulatory filings and proprietary sources, according to the analysts.
See also: Royal flush
The geopolitical backdrop is pushing investors to be more selective, the analysts wrote. Some favour companies deemed more resilient, such as Hermès International SCA and Ferrari NV, while others prefer turnaround stories, including Kering SA or Burberry Group plc.
The Middle East is the luxury industry’s fastest-growing market. Regional economies are expected to be hit hard by the war, with Goldman Sachs Group Inc economists warning gross domestic product could contract by 14% this year in Qatar and Kuwait if the conflict continues through the end of April.
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