Luxury-goods companies face the risk of disappointing sales growth in China that will weigh further on their stock prices, Barclays Plc and Deutsche Bank AG said, cutting their ratings on the industry.

Barclays analyst Carole Madjo reduced her recommendation on France’s LVMH to equal-weight from overweight and the firm lowered its view on the sector to neutral from positive. Deutsche Bank’s European equity strategists downgraded consumer products because of the luxury companies’ exposure to China.

“The luxury goods sector has been going through a severe de-rating over the past month, which we think reflects the deteriorating macro indicators coming from China and the gradual return to more normalized growth,” Madjo and colleagues wrote in a note published late Wednesday after returning from a trip to the country.

LVMH was little changed at €729.10 at 12:22 p.m. in Paris, erasing a drop of as much as 1.3%. At its low for the day, the stock had fallen 20% from its record high of €902 set in April.

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Madjo cut her price target on LVMH Moet Hennessy Louis Vuitton SE’s stock to €835 from €932. There’s a risk for disappointment in the second half after the company’s margins fell short of estiimates at the end of last year and in the first half of 2023, the Barclays analysts said.

Barclays also downgraded the industry “given that we view LVMH as a proxy for the sector,”according to the note.

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Separately, the Deutsche Bank strategists drew the same conclusion, lowering consumer products to underweight.

“We expect low consumer confidence and demand from China to increasingly weigh on the sector,” Maximilian Uleer and Carolin Raab wrote in a note published Thursday. Even with the high risk from China, the sector is the most expensive in Europe, they wrote.

Luxury stocks spearheaded the rally in the European market during the first half of the year but have since lost momentum. LVMH shares are up 7.2% year-to-date while France’s CAC 40 blue-chip index has gained 12%.

Among other luxury stocks, Hermes International and Cartier owner Compagnie Financiere Richemont SA were little changed, while Kering SA dropped 1%.

(Updates to add Deutsche Bank strategists.)