Are watches and luxury outperforming in 2017?
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Are watches and luxury outperforming in 2017?

So far, 2017 has been positive for watches and jewelry. After a year (2016) in which luxury goods were in retreat across the board – described by luxury powerhouse Richemont’s chairman, Johann Rupert, as “horrible” – luxury seems to have reasserted itself in the market. And watches and jewelry are no exception.

Watches, in particular, have had a troubled few years for a number of reasons: Chinese austerity, overstocking in Hong Kong, weak economic growth, and geopolitical disasters affecting travel. In 2017, things have gotten better, but, as Mr. Rupert told journalists when he unveiled Richemont’s annual results in May: “Please do not expect us to make predictions on margins, sales.” Nothing, right now, is certain.

Luxury companies are outperforming in 2017

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SOURCE: Yahoo Finance

Still, if nothing is certain, there are at least compelling reasons for luxury investors to be positive. Hermes International’s share price is up by 15.08% so far this year, Richemont’s is up by 17.35%, Tiffany and Co.’s has risen by 18.30%, and LVMH is doing particularly well, having seen its share price by an impressive 26.79%, year-to-date. Taken in tandem with better underlying figures from quarterly earnings reports and the global economy, it’s hard not to see luxury undergoing a pretty big recovery.

Luxury watches, one of the industries within the luxury sector that has been hit hardest over the past few years, are doing better. In the first four months of 2017, sales of Swiss watches to mainland China were up 21.6% year-over-year, causing many analysts to question whether president Xi Jingping’s austerity drive – with its luxury-crippling focus on gift-giving – was petering out. The Federation of the Swiss Watch Industry (FHS) also reported that total exports in March 2017 were up 7.5% than the same month a year earlier.

However, while investors may have been encouraged by those facts, they were hit with a discouraging one in April: exports had now fallen by 5.7% from the same month in the previous year. There’s a caveat to this: most analysts believe the figure would be positive if the number of working days in April 2017 against April 2016 had been taken into account. But it nonetheless shows that wild celebrations may be premature.

Scilla Huang Sun, a luxury sector specialist at GAM Investment Management in Zurich, sums up what we know: “People are buying watches but the question was always going to be how long it would be before the inventory cycle worked through. Things are improving – it may just be a bit slower than people expected.”

Disclosure

Dominion holds Richemont, LVMH, Hermes International, and Tiffany & Co. in its Global Trends Luxury Fund. 


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