(Bloomberg) -- Resilient margins reported during the fourth-quarter earnings season turned investor sentiment back in favor of luxury stocks, which have since outperformed the broader equity market, Citi analysts wrote in a note. 

A muted reopening of the Chinese economy, combined with slowing demand in Europe and the US, had weighed on the likes of LVMH and Burberry in 2023, leading analysts to cut their earnings expectations for the sector. 

However, LVMH last month posted a 10% increase in revenue on an organic basis in the fourth quarter as wealthy shoppers treated themselves to the group’s pricey handbags and Champagne, even if not all its peers fared so well. 

“The downgrade cycle might be largely over,” Citi analysts Thomas Chauvet and Lorenzo Bracco said, adding they expect normalization rather than contraction in 2024.

The index of European luxury stocks is up 13% year-to-date, far outperforming the 3.4% increase of the pan-European Stoxx 600. In 2023 the sector gained 8.3% while European stocks rose 13%.

--With assistance from Lisa Pham.

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