Purveyors of luxury and indulgence flirted with record stock market valuations last week as investors looked past a litany of bad economic figures and the eurozone debt crisis to focus on the fundamentals.
Dealers said successful share floats for such fashion icons as Prada in Hong Kong — a key market for investors and buyers alike — and Salvatore Ferragamo in Milan boosted interest and offered the prospect of further gains.
Asia shines like a beacon for the companies, where a fast growing middle class is chasing the good life as emerging economies in China, India and across the region throw off wealth as never before.
Photo: AFP
Upcoming first half results are also expected to be stellar, with many expecting an exceptional performance from the likes of LVMH, which runs a stable of global brand names from perfumes to wines and champagne.
“2011 could be a record year in regards to margins, sales and share prices,” Francois Arpels, chief executive at investment bank Bryan Garnier said.
The sector does look promising.
According to consultancy Bain & Company, the global market for luxury goods and services should grow by 8 percent this year, pushed by 25 percent gains in China and 15 percent in the rest of the Asia-Pacific.
Global banking giant HSBC forecasts a 15 percent increase in demand for luxury goods this year and an 11 percent jump next year. Even Japanese sales have rebounded since the devastating March earthquake and tsunami killed thousands of people and took a toll on the economy, HSBC analysts said.
The luxury sector, once seen as vulnerable to the first signs of trouble, appears to have taken on an extraordinary resilience in recent years, as shown by its performance after the start of the global economic slump in 2008.
“Brands got through the crisis, sales fell by only 4.4 percent in 2009,” holding up while other sectors went through the floor, Thomas Mesmin of CA Cheuvreux said.
Better yet, luxury companies used the opportunities offered by the world recession “to refocus on leading products,” Arpels said.
Bigger companies have built up their cash resources and are on the acquisition trail, another feature drawing in investors.
Among recent deals was the LVMH buyout of Bulgari in March and the building up of a major stake in Hermes, while fierce rival PPR acquired a controlling stake in Sowind Group, the Swiss watchmaker.
Luxury brands have caught the eye of investment funds too. Investment company Eurazeo bought up 45 percent of the Moncler luxury textile group early last month and Jimmy Choo, the shoe company, was snapped up by the Labelux Group.
“Even if the fundamentals are solid, speculation is going strong in the sector,” said Mesmin, citing the case of Hermes.
“Investors are betting on an LVMH takeover at a high price,” Mesmin said, noting that Tod’s and Burberry were benefiting from similar speculative interest.
The gains have been so sharp that some analysts think they may be overdone, especially given the sharp rise in gold and silver prices and other high value raw materials.
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