(News Bulletin 247) – The Swiss bank believes that if the disturbances due to urban violence were to continue, the sector could suffer insofar as it operates at high valuation levels.

For now, the riots that have occurred in France have not panicked the financial markets. Monday the CAC 40 closed only slightly lower, by 0.18%, and the index is almost stable on Tuesday.

France has experienced a series of urban violence in recent days, with cars burned and many businesses attacked and looted. This violence followed the death of a 17-year-old teenager in Nanterre, Nahel, killed by a police officer during a check at the end of June. An investigation has been opened by the General Police Inspectorate (IGPN).

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In addition, public transport is disrupted and foreign administrations, such as the British foreign office, have alerted their nationals to the situation, recommending that they consult the French media to avoid places at risk.

This complicated climate “could weigh on the luxury sector,” said UBS in a note dated Monday and published on Tuesday. As the sector is trading at a premium of 127% to the pan-European MSCI Europe index, well above its average historical premium of 99%, “investors will carefully monitor the risks associated with the potential continuation of unrest, because of the impact they could have on sales and the importance of tourism during the summer months”, develops the Swiss establishment.

Stock market decline on Monday

France accounts for around 6% of luxury groups’ sales overall, according to the bank’s estimates, with percentages ranging from 3% for Zegna, an Italian men’s fashion brand, to 9% for Hermès and EssilorLuxottica (LVMH is at 8%).

“Continued market disruption could result in lost revenue due to reduced local and tourist footfall (estimated at around 50% of the market), and (by) potential store closures, should it occur. produce”, anticipates UBS. For now, the only notable repercussion has been the cancellation of a men’s fashion show by Céline, owned by LVMH, as reported by Women’s wear daily (WWD).

While it is difficult to assess the short-term consequences for valuations, UBS points to two past examples, which could give an indication of the medium term, if the disturbances persist. The first concerns the 2014 popular protests in Hong Kong. The demonstrators then challenged the Chinese government’s plan to offer Hong Kong voters the opportunity to vote for the post of city leader from a list of candidates defined by … Beijing. The premium of the sector vis-à-vis the MSCI Europe index then deteriorated by a maximum of 15 percentage points. Second example: the yellow vests crisis, during which this premium fell by up to 12 percentage points from the start of this crisis, at the end of 2018.

However, it should be noted that the situation seems to be calming down in France. A relative lull has been observed over the last two nights, with a drop in the number of people arrested.

Monday the luxury sector has in any case suffered releases: Hermès, which is perhaps the most expensive action of the CAC 40 in terms of valuation multiples, lost 1.7%, LMVH fell 0.9 % and Kering lost 0.3%. The three titles are experiencing very small variations on Tuesday (from -0.15% for Hermès to +0.3% for LVMH around 3 p.m.). The three groups will publish their half-year results towards the end of this month.