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Credit Suisse Outlook for Luxury Goods Bullish

The outlook for luxury goods and brands is bullish due to an increase of more than 7 percent in worldwide wealth at constant exchange rates.

The outlook for luxury goods and brands is bullish due to an increase of more than 7 percent in worldwide wealth at constant exchange rates, according to a report by the Credit Suisse Research Institute.

Released Wednesday, the Credit Suisse Global Wealth and Global Luxury Goods Report revealed that global wealth had grown to $241 trillion by mid-2013, compared to a global decline of 5 percent in the prior year. The positive forecast is projected to run through 2018.

The U.S. saw the biggest improvement, with wealth up a solid 13 percent thanks to a rebound in property prices and buoyant equity markets. The upswing in the U.S. market is supportive for high-end luxury demand during a period when discretionary spending trends had been mixed since the second quarter of 2013. Europe recovered more than half of its large wealth loss in the prior year, while China saw only modest growth versus the strong pace of wealth creation in the last decade. Japanese wealth declined by 20 percent mainly due to the weakness of the yen, the report stated.

The forecast for the luxury market in emerging countries appears optimistic. 

“The emerging world has become increasingly polarized, especially in China, and wealth leapfrogging in emerging markets should keep benefiting the sector. Global wealth is projected to increase by more than 7 percent [compound annual growth rate] in the next five years — more than 6 percent in the developed world and more than 9 percent in the emerging regions,” the report concluded. Despite near-term concerns, wealth creation in emerging markets should continue to be higher in the next five years versus developed nations, with continued polarization of wealth remaining one of the key themes to support demand for luxury goods.

Further growth of high-ticket merchandise and upscale brands in the U.S. and international marketplace is anticipated, especially in the U.S. Commodity-rich countries such as Canada and Australia also present opportunities based on Credit Suisse’s wealth database. In emerging markets, the report singles out Indonesia, India, Mexico and Brazil as “offering interesting long-term penetration potential for global luxury brands.”

Regarding luxury brands, Credit Suisse’s global luxury picks include Tiffany, Ralph Lauren, Burberry, Prada, Miu Miu and Swatch Group, with upscale brands including Breguet, Harry Winston and Blancpain, and Compagnie Financière Richemont SA — which includes Montblanc, Cartier and Van Cleef & Arpels.

“In the U.S., we highlight Tiffany — a leading global player with untapped growth in Europe and Asia, improving raw material prices and a geo-mix shift towards higher-margin regions — and Ralph Lauren and its luxury repositioning providing compelling long-term opportunities in Europe and Asia, as our favorite picks,” the report stated. “In Europe, our current top picks are Swatch Group (60 percent of sales are from emerging clientele, an outperforming midprice portfolio, and best-in-class supply chain), and Richemont, which has an advantaged competitive position in designer jewelry, superior pricing power and improving top-line momentum.”

The report also highlighted Burberry as having brand momentum in China, and a strong digital media effort. Prada, and Miu Miu were singled out for Asia and as having strong momentum in emerging markets, while Chow Tai Fook — identified as the largest global jeweler by market capitalization and a “large and profitable” business in China — moves into the branded jewelry arena.