Global Investing

For luxury, all that glitters is gold

The year has certainly got off to a good start for luxury companies, with firms like LVMH, home to Louis Vuitton, reporting stellar results for the first quarter. No wonder – according to CLSA Asia-Pacific Markets analyst Aaron Fischer, resurgent emerging market consumers are fuelling a strong growth in the global luxury goods market. Growth in the sector was  double its long-term average last year, Fischer says.  He has updated his bullish 2011 report “Dipped in Gold” and is particularly optimistic on established brands, predicting global growth of 10% in 2012, slowing slightly from last year’s 14% rise:

However, we expect leading brands to continue to outperform, rising 15%, compared with the street’s estimate of 12%, which seems far too low.

We look for emerging market consumers, especially when travelling, to drive robust sector growth in the medium term, posting a 15% demand compound annual growth rate in the next 10 years.

That should take emerging markets’ share of global luxury demand to 73% by 2020, up from 50% at present, Fischer predicts, with China playing a leading role.

Already in European fashion capitals, and in favourite shopping destinations such as New York and Hong Kong, shoppers from emerging markets account for over 50% percent of luxury sales. And the home-grown brands that populate malls and department stores across China should gradually cede ground to big international players, Fischer says.  What’s more these new consumers don’t seem too price sensitive — Fischer estimates that Chanel passed on 20% price increases to customers in 2011, without denting sales.

Rich people keep passion investing

The credit crisis has hit the world’s super rich, with their financial wealth shrinking by almost a fifth in 2008, but they are flocking to luxury goods and jewellery in a  flight-to-safety.

A survey by Merrill Lynch Global Wealth Management and CapGemini found that the population of high net worth individuals (HNWI), with net assets of at least $1 million, fell 14.9 percent in 2008 from the year before. The population of ultra high net worth individuals, with net assets of at least $30 million, fell 24.6 percent.

Luxury collectibles, which include automobiles, boats and jets, remained the most preferred choice of “passion” investments, representing 27 percent of the portfolio last year, compared with 26 percent the year before.