Market Pulse | Bounce Back Amid Clouds

Savigny Luxury Index October 2011 | Source: Savigny Partners

LONDON, United Kingdom — The market roller coaster continues, but the luxury sector has once again outperformed the general market. While questions remain about the ability for China to sustain the growth of luxury brands, investors seem to be on side again, at least for now. Analysts remain divided about the future of the luxury sector in 2012, amid much macroeconomic uncertainty.

Big news

• Renewed confidence in the sector prompted the SLI to recover the ground it lost from the mass sell-off in September.  The SLI posted an impressive increase of 21.9 percent over the month of October, versus an increase of 7 percent in the MSCI.

• Positive newsflow has boosted the sector, with LVMH, Burberry, PPR and Coach’s quarterly results beating market expectations.  Swatch announced that September was a record month for the group and that 2011 promised to be its best year ever.

• Investor concerns over a slowdown in China were addressed as all major sector players confirmed the Chinese market’s resilience.

Going up

• Up more than 35 percent, Tiffany’s share price rise over the last month is the strongest in the field.  Surely some savvy investors took notice of the termination of the Swatch partnership, which now makes Tiffany a more palatable target for the big luxury conglomerates?

• Prada posted the second strongest gain for the month underpinned by an 18 percent increase in the Hang Seng Index.  Its China-led growth strategy also appears to have regained favour with investors.

Going down

• With the whole sector bouncing back up, Hermès, Safilo and Luxottica look like they have been left behind.  Hermès’ newly implemented defensive structure has taken the bid-spec wind out of its sails, whilst the two eyewear companies’ share price performances were marred by lacklustre growth expectations.

What to watch

• The all-important holiday season is just around the corner.  Early signs will come from the USA as trading over the Thanksgiving weekend beginning 24 November is usually a bell-weather for Christmas sales.

Sector Valuation

Pierre Mallevays is a contributing editor at The Business of Fashion and founder and managing partner of Savigny Partners, a corporate advisory firm focusing on the retail and luxury goods industry