China loses steam, Luxury stocks out of fashion
One of the must have for portfolio managers long before was the European luxury goods. At present in order to avoid the European economic doldrums and get exposure to surging China sales, which are being hit by the slow growth. After a lunar two-year run turns to profit-taking Hedge funds bets against the sector are upwards and technical charts suggest much more price falls. The deputy head of asset management at B*Capital, Isabelle Enos said “Luxury stocks are losing their safe-haven status. The time when people were ‘overweight’ on the sector is over”.
After a profit warning warned by Burberry in the middle of September which stimulated panic and tremor in the sector which has already been used to regular profit upgrades. The luxury stocks have also fallen down which is being led by the UK fashion house, down 26 percent to near two year lows. The damage of the luxury stocks further spread when the Louis Vuitton owner LVMH, Swiss watch maker Richemont and Gucci owner PPR also started losing 6 to 10 since the warning came from Burberry.
The fund manager of Diamant Bleu Gestion, Christian Jimenez said “China used to be a driver, now it’s a source of worries. While portfolio managers trim their exposure to the sector and take profits, hedge funds have spotted the trend and are going ‘short’ on luxury, which usually amplifies the trend.”
Even though the levels are still remain relatively low, still the short interest in a number of luxury shares has been increasing due to the warning of Burberry. The watchmakers are mainly been targeted by the short sellers, who generally profit from falling stock prices by having a loan of shares, selling them and then buying them back in more cheaper rates. As per the data of the market research, Richemont has 3.2 percent of its outstanding shares out on loan, up from 2.6 percent in late August, and Swatch Group has 7.2 percent of its shares out on loan, up from 4.8 percent in late August.