For those with an interest in luxury, it is important to keep on top of the latest trends. In the world of investment, it makes sense to trade what you know. So as more and more people look to trade on the financial markets, how can luxury fans use their knowledge to their advantage when making investments?
A SECTOR RIPE FOR GROWTH
While the world economy has spluttered along since the 2008 banking crisis, one area which has been booming is the luxury market. Significant growth is also expected over the next decade with overall spending on luxury predicted to rise from €730 billion today to €880 billion by 2020 according to findings from the Boston Consulting Group.
Today the growing middle classes in China, Russia and India are a key target for luxury brands. Large numbers of wealthy tourists continue to visit luxury stores in the US and Europe to purchase exclusive watches, high-end shoes and new clothing lines from the world’s leading luxury brands. Chinese shoppers in particular have been a welcome source of money for luxury brands over recent years, representing some 29 percent of all luxury consumers in 2013.
Indeed, according to Exane BNP Paribas, Greater China now accounts for roughly a quarter of Louis Vuitton’s revenue, 45 per cent in the case of Omega and 35 per cent of Cartier’s. I’ve also seen recent figures suggesting that Chinese consumers could account for more than half of Hermes global sales in the coming years.
But this reliance on the Chinese market is also a cause for concern. Any slowdown in the Chinese economy, as seen recently, can have a major impact on luxury brands. For example, LVMH, whose brands include Louis Vuitton, Givenchy and Bulgari recently reported only a 4% growth in revenue, a decline from the double-digit increases seen in previous years.
And it is not just a slower economy causing jitters. Attitudes towards extravagant spending on luxury items by Chinese officials, in particular in relation to gift-giving, have hardened in recent times. Indeed, the FT’s James Shotter recently argued that “a flashy watch – traditionally a popular gift given by those seeking to curry favour with Chinese businessmen and politicians – has become more of a liability than an asset”.
Many luxury brands have already begun to react to these changes. The sector as a whole is looking outside of China for growth. Countries such as Malaysia and Indonesia are becoming increasingly exciting for luxury brands with sales there up 11 percent last year.
Longer term, looking beyond Asia will be key. The Knight Frank Luxury Opportunities Index, used to pinpoint the 10 countries with the fastest growing potential for luxury spending in the short and medium term, cited Africa highly. In fact, Africa accounts for five of the top 10 locations, with the Middle East taking up the top three slots (Qatar in pole position followed by UAE and Saudi Arabia).
And the types of luxury products which consumers are buying are changing too. Earlier this month the Wealth Report 2014 revealed that consumer appetites for luxury collectables is growing with investments in cars, wine, art and jewellery all expected to grow by well over 100% in the next 10 years.
AN INVESTMENT PERSPECTIVE
Signs of sustained growth in the Eurozone and the US, as well as a stabilisation in key Asian economies all point towards a positive short term future for the luxury sector.
Nearly 80 per cent of luxury industry executives remain optimistic about their firms’ revenues during the first quarter of this year according to a recent Wealth-X survey. Indeed more than 30 per cent of luxury industry executives interviewed expect revenues to rise by more than 10 per cent in the first quarter of 2014. I’ve seen this reflected in how our customers are investing too – with many going long on stocks such as Burberry and Mulberry over an extended period of time, indicating that they seem plenty of room for future growth.
What’s clear is that as luxury brands battle for new and exciting market opportunities, the luxury sector will remain an increasingly interesting sector to watch, whether you are a consumer, an investor, or both.
By Chris Beauchamp, Market Analyst, IG
Article found on : http://www.thegentlemansjournal.com/luxury-sector-investment-opportunity/
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