Emerging market consumers drive global luxury stocks higher

"Everything everywhere disappoints analysts" declared a recent headline in the Financial Times. The author was actually referring to the company created from the merger of the Orange and T-Mobile businesses in the UK, but the headline accurately conveys the mood of the market currently, as pessimistic investors interpret "everything everywhere" as bad and, in the process, thwart any upward rally.

However, Neil Rogan, Gartmore's Head of Global Equities, says: "cut through the sullen conjecture of bears and the picture becomes decidedly less disappointing. Whilst markets undoubtedly have been shaken this year (think European banking crisis, a slowing China, tightening financial regulation and fears of double-dip), there are in fact many bright spots, as demonstrated by the market's positive return year-to-date.

"Notable among the risers this year have been luxury and premium brand stocks. We hold or have held over the course of this year a number of stocks in this category, including LVMH, BMW, Daimler, Tiffany and Polo Ralph Lauren. All are beating the market comfortably year-to-date, helped in a large part by the insatiable appetite of affluent emerging market consumers."

This trend looks set to continue with the newly rich in emerging markets devouring anything premium and showing particular fondness for Western luxury brands. BMW and Daimler, the owner of Mercedes-Benz, have both benefitted hugely from emerging market demand, especially from China. A report recently published by Bernstein Research said that the number of Chinese with annual incomes over US$100,000 has been increasing at an average rate of 12% a year. Moreover, they are buying premium cars at four times the rate of Americans with comparable wealth.

Companies such as LVMH and Tiffany are experiencing similar surges in demand, also. LVMH's Louis Vuitton, for example, has even been forced to close its Parisian stores an hour early to preserve stocks ahead of Christmas - its flagship store on the Avenue des Champs-Elysees is proving something of a mecca for Russian and Chinese tourists.

Neil says: "This is a secular, thematic trend which we believe will reward investors over the long term."