Nouveau riche in emerging markets fuel demand for luxury brands

4th October 2010

Neil Rogan, Gartmore’s head of global equities says: “Cut through the sullen conjecture of bears and the picture becomes decidedly less disappointing.

"Whilst markets undoubtedly have been shaken this year by a number of issues, notably the European banking crisis, a slowing China, tightening financial regulation and fears of a double-dip recession, there are in fact many bright spots.”

The luxury and premium brand sector is undoubtedly one of these bright spots, and it has been powering ahead thanks to the growing band of affluents in emerging countries: “The nouveau riche in these countries are devouring anything premium and showing particular fondness for Western luxury brands", says Rogan.

This demand is being reflected in the share price performance of luxury and premium brands stocks. Gartmore, for instance, is particularly keen on BMW, Daimler, Tiffany, Polo Lauren and LVMH. Rogan says that thanks to the insatiable appetite of affluent emerging market consumers, all of these stocks are beating the market comfortably.

According to Bloomberg, for the year to date, and in terms of absolute performance in local currency, BMW is up 58.11%, Daimler ahead 25.17%; Tiffany by 9.28%, Polo Ralph Lauren 10.97% while LVMH has jumped 37.54%. Their strong performance compares against FT World (USD) index which is ahead just 1.81% year-to-date. 

BMW and Mercedes Benz owner Daimler, notably, have benefitted greatly from demand in China. Rogan cites a report recently published by Bernstein Research which revealed that the number of Chinese with annual incomes over US$100,000 has been increasing at an average rate of 12% a year. Moreover, they are buying premium cars at four times the rate of Americans with comparable wealth.

Companies such as LVMH and Tiffany are experiencing similar surges in demand, also. Rogan notes that LVMH’s Louis Vuitton, for example, has even been forced to close its Parisian stores an hour early to preserve stocks ahead of Christmas. Its flagship store on the Avenue des Champs-Elysees is proving something of a mecca for Russian and Chinese tourists.

Rogan concludes:  “This is a secular, thematic trend the luxury and premium brand sector is enjoying and we believe it will reward investors over the long term.”

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