Bag to reality

Samsonite: Maybe a stock market listing in Hong Kong isn’t such a luxury after all. Samsonite, the world's biggest maker of luggage, slipped as much as 11 per cent on its first day as a public company. It doesn’t look great for Prada, the Italian luxury goods maker poised to price its own offering. And, it pokes a hole in the theory that investors in the East can’t get enough of glossy Western brands.

Samsonite could hardly have foreseen recent market ructions. Hong Kong’s benchmark index has slipped 7 per cent from June’s highs, and 2 per cent since Samsonite’s shares were priced on June 10. Sluggish US growth, untamed Chinese inflation and corrosion in the euro zone are especially unwelcome for a company whose consumer appeal is predicated on high-end travelers.

True, Asia is undeniably where future consumers of high-end consumer goods are. Chinese retail sales grew almost 17 per cent year on year in May, while consumption in the United States is in a rut. But its equity markets are volatile whenever global risk aversion sets in. Highly discretionary industries and fickle emerging markets go together like pinstripe and tartan.

This has poor read-across for Prada, Samsonite’s Italian peer, which is also seeking a Hong Kong quote for its shares. Demand for luggage may be more durable than for high heels and handbags. Thanks also to a generous valuation of around 25 times forecast 2011 earnings and a possible exposure to Italian capital gains tax, retail investor enthusiasm for Prada is already cooling.

The big question is whether the luxury IPO boom has come to China too soon. After all, the cost of equity for companies is lowest where there are stable, well supervised markets, and where investors and analysts are numerous. Those factors favour Europe and the United States. If Asia’s markets no longer offer a frothy premium, the logic of these luxury listings looks a bit threadbare.