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A woman walks past a Burberry shop in Beijing, July 11, 2012. Britain's Burberry provided more evidence of China's economic slowdown on Wednesday when the luxury goods company reported a decline in first quarter sales growth. (JASON LEE/Reuters)
A woman walks past a Burberry shop in Beijing, July 11, 2012. Britain's Burberry provided more evidence of China's economic slowdown on Wednesday when the luxury goods company reported a decline in first quarter sales growth. (JASON LEE/Reuters)

Short-selling luxury? Retreat! Add to ...

Last week in this space, I wrote about an interesting investing thesis from John Hempton of Bronte Capital. The gist of it: Bet against ultra-luxury goods makers – particularly Switzerland-based Compagnie Financiere Richemont SA – because Chinese sales are about to plummet.

If you were tempted by the argument, please take note that Mr. Hempton has switched gears after the company reported dazzling financial results that appeared to shred his investing thesis.

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“Richemont was a modest sized short position and I was trading it for what I thought would be an earnings miss,” he said on Monday.

Yet, Richemont sales rose 24 per cent – and rather than stick around, Mr. Hempton has closed his bet with a loss after the shares jumped. (When you short-sell a stock, you win when the share price falls and lose when the share price rises.)

What’s interesting here, though, is that Mr. Hempton hasn’t entirely lost faith in his argument. Most of the world is struggling to find the sort of money to support the sale of ultra-luxury items and the anecdotal information out of China suggests that it too is struggling.

“I have heard only one alternative thesis – and that is that sales within Mainland China are increasing – not because they want the watches and jewellery but because they are portable wealth that you can move over a border with or store like gold,” he said. “It might be true – but watches and jewellery strike me as poor stores of value.”

Follow on Twitter: @dberman_ROB

 

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