Feb 6, 2014
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Swiss watch exports to China recover in December

Feb 6, 2014

ZURICH, Switzerland - Swiss watch exports to China rose in December, data showed on Thursday, adding to signs a difficult spell for luxury goods makers in an important market may be coming to an end after Swatch Group's upbeat statements on Wednesday.

Swiss watchmakers sold fewer watches in China last year after a government crackdown on gift-giving to officials hit demand for expensive timepieces.

n employee works on a watch mechanism in the new Tag Heuer workshop in Chevenez, Switzerland | Source: AFP

Continued weakness in the Chinese market is one of the main reasons why analysts expect luxury goods sales growth to slow in 2014, despite strong demand from the United States and emerging market tourists hunting for bargains in Europe.

Recently, however, signs are mounting that demand for watches in China may be picking up again.

Swiss watch exports to mainland China, their No.3 market, jumped 18.8 percent in December, partly due to comparison with a very weak result the year before, the Swiss watch federation (FH) said on Thursday. They fell 12.5 percent in 2013.

Exports of Swiss timepieces to No.1 market Hong Kong, where mainland Chinese like to shop, were down 1.8 percent in December, after falling 5.6 percent for the whole of 2013, the FH said, speaking of a "gradual recovery".

"The December datapoint is difficult to read given the obvious benefits of earlier timing of Chinese New Year but it is overall slightly positive for sector sentiment," Citi analyst Thomas Chauvet said in a note.

"We see limited signs of restocking in the industry at this stage although the end of destocking might be near with better industry growth expected in 2014," he said.

Swatch Group Chief Executive Nick Hayek has said he expects double-digit percentage sales growth this year on the back of an improvement in demand in China.

J.P.Morgan Cazenove analyst Melanie Flouquet said in a note that Hayek told analysts on a call on Wednesday that mainland Chinese demand may have turned a corner, notably thanks to increasing consumption by China's middle classes.

"Hayek believes that the consumption from 'normal' people has now overtaken that of state employees and that this is evident in January and first week of February sales," she said.

With its Longines and Tissot brands, the world's biggest watchmaker has a significant exposure to the mid- and entry-price segment. Chinese demand for Longines and Tissot watches remained strong throughout 2013, Swatch said.

"China's new president Xi Jinping's tough stance on corruption practices and extravagant spending is likely to limit any recovery of the illegitimate component of luxury demand this year," Chauvet said, adding this was likely to have a greater impact on the high-end than the mid-range segment.

Shares in Swatch were up 1.8 percent at 1049 GMT, after rising 4 percent on Wednesday, while shares in peer Richemont were up 0.8 percent. The European personal and household goods index was up 1.3 percent.

Swatch Group makes 37 percent of its revenue in Greater China, which includes Hong Kong and Macao, while Cartier-owner Richemont generates 29 percent of its sales there.

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