{"id":30105,"date":"2012-06-07T11:27:02","date_gmt":"2012-06-07T15:27:02","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/06\/luxury-buy-what-chinas-wealthy-are-buying\/"},"modified":"2012-06-07T11:27:02","modified_gmt":"2012-06-07T15:27:02","slug":"luxury-buy-what-chinas-wealthy-are-buying","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/06\/07\/luxury-buy-what-chinas-wealthy-are-buying\/","title":{"rendered":"Luxury: Buy What China\u2019s Wealthy are Buying"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

\u201cA few years ago, I said: if people do not watch it, Europe will become an open-air museum for traveling Chinese. Well, we are halfway there.\u201d<\/em><\/strong><\/p>\n

The quote above was from a Financial Times<\/em> interview with Johann Rupert, Chairman of the Swiss-based Richemont (Switzerland:CFR), the second largest luxury goods group in the world (see \u201cTourist Buyers Pose Sales Conundrum<\/a>\u201d).<\/p>\n

The outlook for Europe is not particularly good these days. Even if the Eurozone survives its current crisis\u2014and I believe it will\u2014real domestic growth will be hard to come by going forward.<\/p>\n

Debt deleveraging, aging demographics, and\u2014in some cases\u2014shrinking populations suggest that Europe may never again be a major engine of consumer demand, or at least not in the lifetimes of most people reading this article.<\/p>\n

Many demographers have warned that Europe risked becoming a \u201ccultural theme park\u201d<\/strong> for American, Chinese, and other foreign tourists, or an \u201copen air museum\u201d as Mr. Rupert suggests. \u201cGiant luxury shopping mall\u201d<\/strong> might be a better description, however.
\nMr. Rupert ought to know. Though Richemont is based in Europe, the biggest buyers of the group\u2019s expensive wares\u2014which include the Cartier and Mont Blanc brands among many others\u2014are Chinese nationals.<\/p>\n

Richemont is not alone. Barron\u2019s recently reported<\/a> that Italian luxury group Prada (Hong Kong:1913) gets 37% of its revenues from Europe, but only 17% of that is actually sold to Europeans. Most of the rest is sold to Asian and specifically Chinese tourists. Counting the nationality of the buyer rather than the location of the sale, 57% of the group\u2019s revenues are estimated to come from non-Japanese Asians and another 12% come from Japan. All told, nearly 70% of Prada\u2019s sales go to the East.<\/p>\n

Precise figures are impossible to come by, but it is believed that half of the luxury goods sold in Europe in 2011 were to tourists from mainland China.<\/strong> And this does not include sales made in stores within China itself, which are growing at a startling clip.<\/p>\n

Though the United States has its share of luxury brands, such as handbag maker Coach (NYSE:$<\/span>COH<\/a>)<\/strong>, the luxury goods industry is concentrated in Europe, which also happens to be ground zero of the biggest sovereign debt crisis in generations. And with this crisis comes incredible opportunity.<\/p>\n

I\u2019ve never been comfortable investing heavily in emerging markets. The lack of transparency and corporate governance was always a sticking point for me. I\u2019ve always preferred to invest indirectly, through the shares of Western firms with a large and growing presence in emerging markets (call it \u201cEmerging Markets through the back door\u201d).<\/p>\n

The luxury goods sector is particularly well suited for this strategy because not only does it target emerging market consumers, it targets wealthy emerging market consumers that tend to weather economic storms better than the rest.<\/p>\n

In recent articles, I have suggested that readers accumulate shares of European and particularly Spanish blue chips on dips (see \u201cHow to Invest for European Armageddon<\/a>\u201d). Today, I recommend that readers take their pick of Europe\u2019s finest luxury goods companies.<\/strong><\/p>\n

\"\"<\/a>For those investors with access to foreign markets, I recommend shares of both Prada and Richemont. Swatch Group (Switzerland:UHR)<\/strong>, the maker if the Omega brand worn by Daniel Craig as James Bond, is also a fine choice.<\/p>\n

For those limited to stocks trading in the U.S. market, the shares of the LVMH Moet Hennessey Louis Vuitton ADR (Pink:$<\/span>LVMUY<\/a>)<\/strong> are a fine option as well. The shares are liquid enough for most investors to trade without any issues, but investors trading in large lots should use a limit order nonetheless.<\/p>\n

China\u2019s economy is slowing, and this has caused a stampede out of most luxury names in the second quarter. Alas, it is remarkable how short some investors\u2019 memories can be.<\/p>\n

We\u2019ve seen this movie before<\/strong>. Last summer luxury firms sold off heavily as well, as\u2026you guessed it\u2026fears of a European meltdown and a slowing in China caused investors to dump the sector. But then, a funny thing happened. The slowdown in luxury sales never materialized and 2011 proved to be the strongest year in history for the sector.<\/p>\n

Will 2012 prove to be as good of a year for the sector? Only time will tell, but I have no reason to believe this time will be different. Take advantage of any short-term weakness to accumulate shares of high-profile European luxury brands.<\/p>\n

Disclosures: Sizemore Capital currently holds positions in COH and LVMUY. This article first appeared on MarketWatch<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter \u201cA few years ago, I said: if people do not watch it, Europe will become an open-air museum for traveling Chinese. Well, we are halfway there.\u201d The quote above was from a Financial Times interview with Johann Rupert, Chairman of the Swiss-based Richemont (Switzerland:CFR), the second largest luxury goods group in … <\/p>\n

Continue reading “Luxury: Buy What China\u2019s Wealthy are Buying”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-30105","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/30105","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=30105"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/30105\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=30105"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=30105"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=30105"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}