Long LVMH short Swatch, neutral/short CFR thesis continued...
Swiss watch exports grew by 1.5% for Oct’19, slowing from +10.4% in the Sep’19. The main contributor to the slowdown was Hong Kong, which declined by 29.7% y/y. This decline is in line with luxury revenue and retail sales growth in Hong Kong. Estimates that exports to Greater China declined by 10% y/y this month despite strong growth in Mainland China (+17.6% y/y). The increased spending in Mainland China is still not sufficient to offset the steep decline in Hong Kong.
Japan (+13%) normalized from +31.6% in the previous month after VAT hike was implemented on 1 Oct’19. The US (+9.5%) remains robust and is now the largest market for watch exports. Europe (+8.3%) sustained recovery from the previous month. By category, luxury watches continue to outperform (+5.6% y/y) but have slowed from the previous month due to Hong Kong exposure to high-end watches.