Richemont was down 6.2%, posting one of the steepest declines in the Europe STOXX 600 index alongside other hotel and tourism names also heavily affected by the deterioration in the geopolitical situation in the Middle East, such as Accor (-9%), TUI (-8.1%) and Lufhtansa (-6.8%).

With a drop of nearly 4%, the European luxury index, the STOXX Europe Luxury 10, was among the biggest sectoral decliners early in the session.

According to specialists, the worsening tensions in the Middle East represent a real threat to the luxury industry, which generates around 5% of its sales in the region, where Swatch, Richemont and LVMH are particularly well established.

A direct hit to the wealth effect

In a note published in the morning, RBC analysts said the sharp sell-off in equity markets and "risky” assets, driving a return to traditional safe havens such as the US dollar, Treasuries, gold, the Swiss franc or the yen, creates a negative wealth effect for investors, mechanically reducing their available capital and their propensity to spend.

The "feel good” factor put to the test

 RBC teams also noted that the luxury sector is primarily driven by consumer confidence and a constructive outlook for the future, with spending habits tied more to emotional factors than purely transactional ones.

In a climate marked by heightened conflicts, shocks and fears, this "feel-good” factor is likely to evaporate, and the current uncertainty could weigh heavily on demand for prestige goods, as buyers are expected to favour caution over ostentation.

Dubaï: a consumption hub at a standstill

 The most crucial luxury market in the Middle East, Dubaï is currently bearing the full brunt of the direct consequences of the intensifying conflict, with residents confined to their homes for several days, effectively creating a "curfew” that is expected to paralyse the emirate's commercial activity, RBC added.

Post-Ramadan tourist flows dry up

 With the turmoil shaking the Middle East, a massive reluctance among consumers to travel after Ramadan can also be expected, which could bring international travel to a halt and deprive the European market of a substantial share of luxury consumption, usually driven by tourist flows from the Gulf, the broker continued.

Supply chain disruptions

 Finally, beyond consumption habits, the entire logistics apparatus could be shaken by the possibility of prolonged disruptions in the Strait of Hormuz, a vital shipping route for global supplies.

All these potentially devastating factors represent a new blow for a sector that is struggling to recover from a difficult period, marked in particular by the slowdown in the Chinese market, which also weighs heavily on the industry.

On the Paris stock market, LVMH was down 3.7%, Kering slid 4.3% while Hermès - seen as having a more defensive profile - limited its decline to 3.2%. In Zurich, Swatch fell 5% and Moncler was down 3% in Milan.