Luxury products boom leads Koreans to luxury company stocks

Customers wait in a long line in front of Shinsegae Department Store in Jung District, central Seoul, on May 29. [YONHAP]

Some Koreans are buying luxury company stocks so they can make enough money to buy luxury goods.

In January, a 35-year-old office worker in Seoul put around 3 million won ($2,620) in a fund that invests in global luxury companies. She had never made such a bet, but decided to take a gamble after seeing a long line in front of a luxury brand outlet in a department store.

She is currently sitting on a 14 percent gain. Purchasing a luxury handbag with the gains is her goal, she said.

Luxury brands have been doing well recently as the locked down and travel restricted have been spoiling themselves, and shares in the companies have been rising.

Shares of LVMH, a French company that owns around 70 luxury brands including Louis Vuitton, Christian Dior, Givenchy and Marc Jacobs, closed at 663.2 euro ($783) Thursday, up 30.3 percent this year.

During the same period, shares of Richemont, a Switzerland company that runs brands like Cartier and Montblanc, jumped 38 percent. Kering, which runs Gucci and Saint Laurent, rose 29 percent, and cosmetics company Estee Lauder 28.7 percent.

Directly investing in those companies is quite complex for Korean investors, as they are mostly listed on either European or United States exchanges. Fund products that invest in those companies give them access.

According to market tracker FnGuide, the return rate of the Hanaro Global Luxury S&P exchange traded fund (ETF) was 20 percent this year through July 12. The fund product, which is operated by NH-Amundi Asset Management, invests in many global luxury companies, with 8.6 percent of its assets in LVMH, 6.7 percent in Kering, 6.5 percent in Richemont and 5.5 percent in Estee Lauder.

Similar products are Korea Investment Management’s Korea Invest Global Brand Power fund and Assetplus Investment Management’s Global Rich Together Fund, and they have achieved 18.7 percent and 11.7 percent of gains so far, respectively.

The S&P 500 is up almost 18 percent year to date.

One of the key reasons behind the popularity is the growing expectations for growth. LVMH’s revenue rose 30 percent in the first quarter of the year compared to same quarter a year earlier, while Hermes reported a 38.4 percent increase in revenue.

“As Covid-19 prevented people from traveling overseas, demand for luxury goods rose,” said Lim Eun-hye, a global equity researcher at Samsung Securities.

China is leading the boom.

According to market research firm Euromonitor, Chinese consumers spent a total of $38 billion on luxury goods in 2020, up 30 percent from the previous year. That places China as the second largest country after the United States in terms of the amount of money used to purchase luxury goods.

Korea is catching up fast. Koreans spent $12.5 billion buying luxury products in 2020, No. 7 just ahead of Germany.

During the same period, spending in United States, Japan, France and England declined more than 20 percent.

Experts have an optimistic outlook about the shares of luxury brand companies and related fund products.

“The luxury goods market is expected to increase further until at least next year,” said Yu Jung-hyun, an analyst at Daishin Securities.

The size of global luxury market, which stood at about 1 trillion euros last year, is likely to reach 1.3 trillion euros in 2022, according to global consulting firm Bain & Company.

“Most of global luxury companies are listed on European exchanges, so Koreans have to consider lots of factors, like currency rates, in order to invest in them,” said Kim Hyun-bin, leader of NH-Amundi Asset Management’s ETF team. “Fund products and ETFs will be a good option for them.”

BY SARAH CHEA, HWANG EUI-YOUNG AND LEE TAE-YUN [chea.sarah@joongang.co.kr]