LIVE MARKETS-Time to buy the luxury dip?

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TIME TO BUY THE LUXURY DIP?

A gauge of European luxury .STXLUXP has performed poorly this year, down 2%, and after a disappointing first quarter, the upcoming reporting season isn't expected to be much better.

Yet, for UBS, it's time to turn less bearish.

The Swiss bank has lifted its rating on European luxury to "benchmark" from "underweight," arguing the selloff has created a tactical opportunity despite ongoing risks in China.

Strategist Andrew Garthwaite at UBS says the sector is almost three standard deviations oversold relative to the market, a rare signal that has historically preceded a rebound.

He also notes earnings revisions have been better than the stocks' performance, suggesting markets have priced in excessive pessimism.

Structural drivers also support the new stance, including U.S. tax cuts for the wealthy and Wall Street's surge to previous highs, which should boost consumption.

And valuations are only "only marginally" expensive.

However, UBS stops short of an "overweight" rating due to factors including a still "problematic" outlook for China's housing market and the sector's vulnerability to tariffs.

China makes about 28% of the luxury market, and around 60-70% of household wealth is in real estate.

(Danilo Masoni)

EARLIER ON LIVE MARKETS:

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