LVMH shares traded close to a six-year low in early afternoon European trade, as the escalating U.S.-Iran war and fears around Chinese demand drag on the beleaguered European luxury sector.

Shares in the Paris-listed bellwether fell 2.55% to 427.75 euros Thursday, their lowest level since November 2020. The drop extends a torrid year for the stock, which has lost around a third of its market value.

A basket of European luxury stocks slid 2.1% Thursday. Ray-Ban owner EssilorLuxottica fell 2.4%, while Kering--which counts Gucci and Saint Laurent among its stable of brands--dropped 1.8%. Hermes shares fell 3.5% to their lowest level since January 2023.

A fresh round of tit-for-tat strikes between the U.S. and Iran has renewed fears that the war will have a prolonged negative impact on Middle East demand, dragging on the sector in recent sessions.

Moreover, analysts warn that the demand outlook from China remains underwhelming. Chinese consumer confidence estimates for the third quarter suggest that a recovery in the country "may be pausing again," Bernstein analysts wrote in a note to clients.

Demand for luxuries from wealthy consumers in China is also lagging, with a fresh round of tax measures targeting offshore wealth likely having a chilling effect on spending, the analysts said.

China and Middle Eastern headwinds compound a difficult picture for the sector. The Stoxx Europe Luxuries index is down 19% so far this year as a hoped-for recovery in Asian demand repeatedly failed to materialize. The outlook for the sector likely won't turn positive any time soon, JPMorgan analysts said.

"China's retail sales point to continued volatility and soft trends in the region, a dynamic we expect to continue for the rest of the year and possibly into 2027," the analysts wrote.

There are also factors specific to LVMH, Bernstein analyst Luca Solca said.

Flagship brand Louis Vuitton won a suit against popular Chinese tea chain Molly Tea in July, in which the French brand claimed its four-petal flower design had been copied.

The decision prompted backlash from Chinese consumers that could in turn be hurting LVMH's performance in the country, Solca said.