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Buy HK Listed Luxury Stocks vs European Names: Analyst

The upcoming listings of retailers Coach, Prada and Samsonite in Hong Kong are a sign that the future growth of the retail and luxury industry is in China, according to one analyst.

Two women look at a jewelry display in a luxury shopping mall in Shanghai. Following in the footsteps of Japan, China has become the world's second-largest consumer of high-end fashion, accessories and luxury goods.
Phillipe Lopez | AFP | Getty Images
Two women look at a jewelry display in a luxury shopping mall in Shanghai. Following in the footsteps of Japan, China has become the world's second-largest consumer of high-end fashion, accessories and luxury goods.

"There's a whole new category of consumer coming from China pushing burgeoning demand for luxury goods," Matthew Marsden, Director of Consumer Research at Samsung Securities told CNBC on Friday.

Marsden sees "exploding" demand for all things luxury in China, with the demand for watches and jewellery in China and Hong Kong increasing 40 percent in the first quarter.

Marsden believes investors who want to bet on this trend should put their money in Hong Kong and Chinese luxury companies rather than Western ones such as Richemont and LVMH, which have a smaller exposure to the Chinese consumer market. LVMH, he pointed out, gets only 25 percent of its sales from Asia ex-Japan.

"There is a set of Hong Kong listed stocks that have their business here in Greater China and their growth profile is just gorgeous in comparison," Marsden said.

His favorite picks in the sector include Emperor Watch and Jewellery, recliner sofa maker Man Wah Holdings and luxury goods distributor Sparkle Roll, which sells Rolls Royce cars. These stocks trade at a lower forward price earnings (PE) multiple than some of their European counterparts. Emperor Watch and Jewellery, for example, trades at a PE of 12.5 while Richemont trades at 17.6.

"These stocks look very attractively valued and we think there is good upside," Marsden added.

The recent trend of high-end retailers lining up to list in Hong Kong was also an encouraging sign, according to Marsden.

Shares of Milan Station, a seller of second-hand luxury handbags, soared nearly 70 percent in their first day of trade on the Hong Kong bourse this week, with the retail tranche oversubscribed 2,180 times. The company raised $21 million via the IPO.