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Stocks

Luxury stocks rally as conspicuous spending goes global

Booming markets, rise of Chinese middle class help drive trend

A new Porsche model drew a crowd at a Tokyo shopping mall earlier this month.

TOKYO -- Investors have driven up the price of luxury-brand stocks around the world, expecting opulent consumption to increase amid the global economic recovery, high stock prices and the growing ranks of the middle class in China.

The S&P Global Luxury Index, which consists of 80 companies that provide upmarket goods and services, has been hovering around 2,650 so far this month, the highest level since its launch in 2011. It has risen 37% this year, far surpassing the 20% range for major stock indexes in Japan and the U.S.

Trickling up?

"Thanks to the stock market boom, luxury cars are selling extremely well," said an official at IDOM, whose used-car dealership chains include Liberala, which specializes in imported cars.

A recent exhibition of a Porsche vehicle at a Tokyo shopping mall attracted large crowds. Some of the onlookers showed more than a passing interest in the German luxury automaker's offering, sitting in the seats to check the feel and opening the trunk.

Worldwide, the likes of Italian sports car maker Ferrari and Kering, the French company that holds Gucci and other luxury fashion brands, have seen their stock prices climb more than 80% since the start of the year.

Ferrari reported a 5% year-on-year increase in global shipments to roughly 6,300 units for the January-September period. Gucci enjoyed a 45% sales jump in the nine-month period.

In Japan, shares of Seiko Holdings, which sells Grand Seiko brand luxury watches, hit a year-to-date high on Monday. As the Nikkei Stock Average has roared back to the level last seen 26 years ago, the so-called wealth effect appears to have lifted sales of big-ticket items, such as art objects and jewelry, at department stores.

The high-end travel and leisure sector has also been doing well. U.S. hotel chains Marriott International and Hilton Worldwide Holdings have announced plans to increase the number of luxury hotels around the world, including in Japan. American Express's net profit for the July-September quarter rose 19% on the year.

The global luxury goods market has expanded to a record 1.2 trillion euros ($1.42 trillion), according to U.S. management consultancy Bain & Co.

China, which already accounts for 30% of the worldwide purchases of such goods, maintains particularly noticeable growth. Bain sees the global market continuing to grow at 4% to 5% annually over the next three years.

"Upmarket consumption will continue to increase, driven by the Chinese middle class, which number more than 100 million people," an analyst at Mitubishi Kokusai Asset Management said. "This will likely keep related stocks at solid levels."

Trickling down?

It's not just the wealthy who are splurging on high-priced items.

A report by the Mizuho Research Institute shows that Japanese workers received the highest bonuses in three years this winter.

At Bic Camera, "OLED televisions, SLR cameras and other high-priced products have been selling well," according to an official. The consumer electronics retailer's stock price has risen to its highest level since listing.

At Matsuya's department store in Tokyo's Ginza district, "cosmetics and luxury brand products have been selling well." The company's stock price has climbed more than 40% since the start of the year.

Growing divide

Meanwhile, Japanese casual clothing retailer Shimamura, known for relatively cheap clothes, and many other businesses that mainly deal with low-priced items are languishing at lower stock prices than where they started this year.

A similar trend is observed elsewhere, including in the U.S., with major retailer Target, for instance. Stock investors apparently see a brighter future for businesses targeting the wealthy than those focusing on ordinary consumers.

(Nikkei)

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