Isabelle Ardon, head of SG Gestion's $31.5 million luxury fund, said the sector would outperform the MSCI World index this year thanks to strong demand from Chinese buyers, recovery in the United States and the weaker euro.
Watches and spirits sales will also get a boost from retailers rebuilding stocks after cutting them sharply in 2009, the worst year on record for the luxury goods industry.
"Watches and spirits are the sectors we favor most because they are expected to show nice growth this year," Ardon said in an interview at the Reuters Global Luxury Summit in Paris. Shares in LVMH and Richemont have risen nearly 10 percent since January 1, while Swatch shares have gained 15 percent. Watches are set for double-digit growth in 2010 after dropping 22 percent in 2009, Ardon said.
Swatch Group, whose watch brands Omega, Breguet, Longines and Tissot span a large price range, should benefit more strongly from the recovery than Richemont, whose brands include Cartier and IWC, she said.
Swatch is also more exposed to China than Richemont, she added.
LVMH, the industry leader and the biggest luxury holding of SG Gestion, is expected to benefit from the recovery of cognac and champagne sales, hit hard by the downturn.
With a weak euro, it will also be easier to lift the prices of some spirits in some countries abroad, she said.
LVMH's revenue should also get a lift from Louis Vuitton, regarded by consumers as a safer investment than other leather goods brands because it never offers discounts and is always seen as being in fashion.
CHINESE TOP LUXURY BUYERS
"There has been a polarization of the market... The most well-known brands have weathered the crisis best and have won market share," Ardon said.
As stock markets return to more normal levels, Ardon said she was "quite optimistic" about the sector performance this year.
"Luxury is likely to outperform the other sectors in 2010 compared with the MSCI World index and the MSCI Consumer Discretionary (index)," she said.
The debt crisis in Europe is unlikely to affect demand in the euro zone as the weaker single currency is likely to attract shoppers, with Chinese visitors driving demand for luxury goods.
"The euro zone is a sizeable market, but today the growth reserve is in the emerging countries, and particularly in China, whose demand is pulling the entire sector. This is the reason why we are not too worried about it," Ardon said.
Chinese consumers have become the biggest luxury spenders, accounting for about 25 percent of global sales, followed by Americans, Europeans and Japanese, each accounting for around 20 percent of world demand.
"For the Chinese consumer, luxury is synonymous with Western heritage. Today there are no big Chinese luxury brands, so there are no competitors," she said.
Luxury sector will outperform in 2010
Watches and spirits are set for a solid rebound this year, with LVMH, Swatch and Richemont top of the list of luxury stocks with the biggest upside, Paris-based luxury fund SG Gestion said.
LVMH′s revenue should also get a lift from Louis Vuitton, regarded by consumers as a safer investment than other leather goods brands because it never offers discounts and is always seen as being in fashion.
By: N. Peter Kramer
