Emerging markets' affinity for luxury: a growing trend.

Are you currently considering investment opportunities in emerging markets, all while maintaining a strong presence in assets listed on both European and American markets?
Luxury might just be the ideal solution.
While the luxury sector began the year on a strong note, it has faced challenges in the past two months. Luxury equities saw a decline in August and September, attributed to various factors such as increasing interest rates, disappointing economic data from China including renewed concerns about the real estate market potentially affecting consumer demand and shifts in analyst recommendations. These elements have introduced uncertainty regarding these growth assets.
Nevertheless, the financial results reported during the first half of the year provide an encouraging outlook and underline the resilience of this thematic investment. Many of the leading luxury groups are predominantly listed on European and American markets. However, it is essential to assess the extent to which their revenue is derived from emerging markets. A global estimate is therefore essential.
When focusing on the most prominent and distinguished luxury brands, such as LVMH, Hermès, Kering, Moncler, and Burberry in the realm of soft luxury category, Estée Lauder and L'Oréal in the beauty and cosmetics, Compagnie Financière Richemont for hard luxury, Diageo and Pernod Ricard for spirits, and Porsche and Ferrari for automobiles, it becomes evident that the Asia-Pacific region, predominantly represented by China, plays a significant role. This region accounts for over 25% of first-half 2023 revenue. Notably, Hermès leads the pack with a substantial 49% contribution, followed closely by Burberry and Moncler at 44%. Similarly, for Compagnie Financière Richemont and Pernod Ricard the dynamic market contributes 41%. Should we broaden our perspective to encompass other emerging regions, such as for example Latin America and Africa, we find that major luxury groups maintain exposure levels exceeding 35% to emerging countries.
Why are emerging countries catalysts? The luxury sector is buoyed by consumption, increasingly driven by the expanding middle class. Emerging countries are experiencing notable economic growth, with China leading the way and poised to maintain its position at the forefront. Asian consumers aspire to showcase symbols of success and embrace cosmopolitan lifestyles. This year, however, China experienced a slowdown in growth, recovering more slowly than expected. Nevertheless, by 2030, it is predicted that the Chinese, in their own country, will be the largest consumers of luxury goods, according to the renowned firm Bain and Company.
 
Another rapidly growing economy making headlines is India which is re-entering the global economic spotlight on several fronts. Although luxury consumption in India is currently relatively low, it is showing substantial growth, with a remarkable 26% year-over-year increase. Millennials are the driving force behind the flourishing luxury industry, as India boasts the largest share of millennial consumers among major international economies, exceeding 30%. This demographic profile, combined with rapidly rising urban household incomes, is fueling the swift growth of luxury consumption in India. The Indian economy appears to be on a robust growth trajectory, with one of the fastest GDP growth rates among major world economies.
Investing in emerging markets through well-established and well-managed European and American companies is a prudent strategy. The luxury sector has demonstrated resilience and is considered an all-weather investment. In many cases, the Price/Earnings ratio (P/E) for these companies has returned to pre-COVID levels. Historically, buying luxury company stocks during market corrections has proven to be a profitable investment strategy.

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