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Luxury sector to see stocks rise

By Don-Alvin Adegeest


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Hermès may be more than its weight in gold, but other luxury houses in Europe can equally expect their stock to rise over the next year, according to Goldman Sachs.

“We see 20 percent upside over 12 months for the luxury sector,” after underperforming the Stoxx Europe 600 index, and following a recent sell-off, said Goldman analysts William Hutchings and Isabel Zhang Zhang, in a Monday note.

“[We] believe this is an opportunity to buy selectively into the sector,” after it fell 15 percent over the past year compared with a 1 percent loss for the pan-European index.

China is expected to drive market growth

Among the four themes Goldman sees driving the luxury market this year is spending in China. Spending in that market should rise 6 percent in 2016. But that’s less than the 10 percent growth logged in 2015, and would mark the slowest rate since the Chinese luxury market opened a decade ago, said Goldman.

“The emerged and emerging middle class have a lower propensity to spend on luxury — but the desire for branded, status luxury brands remains unchecked,” the investment bank said. This “means selling affordable luxuries (products and services) to the masses,” with three-fourths of total growth in 2016 expected to come from 70 million middle-class consumers in China.

Such consumers have annual disposable income of 30,000-65,000 dollars Goldman wrote.

Still, “we expect China to remain the greatest contributor to global growth—over 50 percent of the aggregate growth of the industry,” the analysts said.

Overall, Goldman expects global luxury sales to rise 3.4 percent in 2016, down from 4 to 5 percent over the past two years, mainly because of slowing growth in China and in the U.S.

Goldman Sachs