The timelessness of luxury today

It’s said that diamonds are for ever, but luxury as a whole has long been a safe bet on the stock market, especially since the turn of the century. While overall investor sentiment is not one of unbridled optimism, we think it’s worth rediscovering the virtues of a sector that includes watchmaking, fashion, wines and spirits, perfumes and cosmetics, not to mention the hotel industry and high-end automobiles.

Luxury companies share specific characteristics that set them apart from the rest of the market. They often own old and world-famous brands – Hermès was founded in 1837, Louis Vuitton in 1854 – and their craftsmanship and industrial know-how are powerful barriers to entry. They also have significant leeway in setting prices – in 2022, despite prices going up by 8%, Louis Vuitton's sales grew by 25%. What’s more, these luxury brands strive to be model companies in terms of their environmental and social relations, ensuring, in particular, that their sourcing is sustainable.

For the past 20 years, luxury brands have been buoyed by the sharp rise in purchasing power in Asia, and particularly China. Thanks to online sales, they’ve succeeded in reaching new customers who are younger, or live a long way from the major urban hubs. Such sales account for 15% of the total turnover at Kering, who own Gucci, Balenciaga and Boucheron.

There are good reasons to invest in the luxury sector now and in the companies that are underpinning its growth, such as Visa or Mastercard. Consumption should pick back up as inflation comes down, and the surplus savings representing 4% of national wealth will have to be spent somewhere as China reopens after successive lockdowns. Stock market valuation ratios are in the average range of the last 10 years. This makes investment attractive given the currently very high margin levels.

Luxury names have stood the test of time by staying away from fads and fashions. In keeping with that trend, we also value things that last: Pictet AM's luxury asset management team hasn’t changed for almost 20 years.