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Scilla Huang Sun, fund manager, JB Luxury Brands Fund, Swiss & Global Asset Management

Comment: Sparkling demand for luxury brands


The luxury goods industry is growing, and continues to be profitable, says Scilla Huang Sun (pictured), fund manager, JB Luxury Brands Fund, Swiss & Global Asset Management…

"Asian consumers, in particular the Chinese, provide strong demand for Western luxury brands and are making a significant contribution to the industry’s growth. 

"2010 was a very good year for the luxury industry, with both sales and profits growing at a double-digit pace. The outlook for 2011 also looks very promising. We expect luxury sales to advance by at least 8% to 10%, driven by emerging markets, as well as renewed strength in developed market consumption.

"The strength of Chinese luxury demand was confirmed at the watch salon in Geneva, Switzerland in January. The Geneva watch fair is an important indicator for global watch sales as some brands generate as much as 80% of their annual turnover at the fair. Some watch brands grew sales to Chinese buyers by more than 50% in 2010. Demand from other emerging countries was also buoyant. 

"Demand for luxury goods is not only being driven by emerging market consumers. High-end consumption in Western Europe and the US is doing better than expected. Unemployment of well-educated people is much lower than the average unemployment rate. Also, the recovery of financial markets has lifted sentiment among upper income consumers. High-end department stores in the US, for example, surprised with positive sales during Christmas.

"While the secular trend for luxury has been very strong, the future looks even brighter. Wealth creation in emerging markets will continue to outpace the developed world. The emerging markets represent an ever increasing share of the global luxury market, and going forward, the strong consumption growth will have a much bigger impact on the luxury industry.

"Luxury firms can be highly profitable. Yet to remain so, successful brand management is crucial, as the winners take it all. The JB Luxury Brands Fund invests in the best luxury brands and is broadly diversified in terms of regions and segments. The fund has outperformed the overall market both since its inception at the end of January 2008, and in 2010. The fund has returned +38.67% in the three years since launch (31 January 2008), and returned +46.86% in 2010. Since the beginning of 2011 luxury stocks are pausing after a very strong performance in 2010, but we remain positive for the long run as solid fundamentals will prevail."

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