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(JOHN LEHMANN/JOHN LEHMANN/GLOBE AND MAIL)
(JOHN LEHMANN/JOHN LEHMANN/GLOBE AND MAIL)

Retail

Luxury stocks bounce back as Japan stabilizes Add to ...

Luxury stocks jumped Monday on growing optimism that the devastating Japanese earthquake's impact on retail sales might not be as severe as initially feared.

Shares of high-end clothing retailers and sellers of luxury goods were pummelled last week amid fears that nuclear accidents at some of Japan's reactors could harm the country's economy and prompt affluent Japanese consumers to shut their wallets.

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Japan is the world's third-largest luxury goods market after the United States and Europe. The Asian country accounts for almost a quarter of global demand for high-end merchandise.

In the United States, shares of upscale jeweller Tiffany & Co., climbed 5 per cent, while Coach Inc., a marketer of fine accessories, and clothing retailer Polo Ralph Lauren Corp. each rose 2 per cent.

European luxury goods makers also moved higher. Hermès International SCA, which gets 19 per cent of its sales from Japan, rose 4 per cent. Conglomerate LVMH Moët Hennessy Louis Vuitton SA, which receives nearly 10 per cent of its sales from Japan, rose 3 per cent.

The market seems to feel that "things won't be as bad" as they may have seemed, said Sukyong Yang, a global portfolio manager with Cumberland Private Wealth Management Inc. in Toronto.

"Tiffany reported good numbers [on Monday]and Japan is a little more quiet. There is more optimistic news on the nuclear front."

On Monday, Tiffany reported a 29-per-cent jump in fourth-quarter profit, but also cut profit expectations for the first quarter of 2011 because of the events in Japan. The retailer, which gets 20 per cent of its sales from Japan, said most of the stores that were closed after the earthquake have since reopened.

Coach, which also gets 20 per cent of its revenue from that country, closed about 20 stores because of the disaster. But it is also investing in Western Europe and emerging markets such as China.

While all luxury stocks with exposure to Japan took a big hit last week, institutional investors are now figuring out whether "it might have been overdone," said Ms. Yang, who adds she is looking for bargains among luxury stocks hurt by the Japanese earthquake.

"If there is a reasonable expectation that the demand can be picked up by another region [such as China]then it might not cause the market to be as pessimistic," said Ms. Yang, whose portfolio includes Hengdeli Holdings Inc., China's largest watch retailer which counts LVMH among its biggest stakeholders.

Matthew Beckerleg, a portfolio manager at Montreal-based Pembroke Management Ltd., agreed that the rebound in luxury stocks indicates that investors are feeling less anxious about Japan.

"It looks like the situation in Japan right now is not getting worse so people are starting to anticipate that things might be starting to get better," Mr. Beckerleg said. "These are high-beta [highly volatile]stocks."

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