Chinese fashion meant cheap copies of European or American brand names, but that was so yesterday.
Prada's listing in Hong Kong is a sign the East is where the action is
It was not that long ago that goods "made in China" had a distinctly downmarket reputation, at least in fashion circles. Chinese fashion meant cheap copies of European or American brand names, but that is so yesterday, as fashionistas would put it.
The decision by the Italian fashion group Prada not to list in its home market of Milan - indeed its move to give Europe and the US a wide berth and list its shares in Hong Kong - portends a change in global wealth patterns about which many have conjectured but on which few have acted.
Prada bypassing western capital markets is a first for a European fashion house, although not the first for a luxury goods group. L'Occitane, a French cosmetics and perfumery company, listed in Hong Kong in May last year as part of its Asian expansion.
L'Occitane raised US$704 million (Dh2.58 billion) in an offering that attracted strong demand from institutional investors. Prada, by comparison, had abandoned several attempted listings in Milan in the past decade, stating on each occasion that market conditions had "not been favourable".
With Europe and the US still experiencing economic difficulties, Prada may be simply capitalising on Hong Kong's current liquidity bubble. The city is well known for listings of financial companies, including a bumper $15bn listing of American International Group's international arm near the end of last year. This initial public offering (IPO) came only a few months after Agricultural Bank of China raised a total of $22.1bn from a dual listing in Hong Kong and Shanghai, making it the biggest IPO in history.
Prada's listing, which is expected this month, is evidence of a more important economic swing towards Asia — not the movement of hot money that may change with opportunity and time but the rise of Asian disposable wealth, which is far less transient.
Few have tested the power of the Chinese consumer through direct stock market exposure. A Credit Suisse report recently declared that the average Chinese household's wealth will surpass that of its Japanese counterpart within the next five years. This is Prada's bet.
There is no doubt that the Hong Kong and Shanghai stock markets will have more than enough depth to support deals from across the world, and it will not just be in the fashion arena. Companies raised almost $58bn through new listings in Hong Kong last year, according to Dealogic, more than on any other exchange in the world.
What is happening elsewhere? In the US, a wave of corporate mergers, higher listing costs and perceived regulatory hurdles such as the Sarbanes-Oxley Act have contributed to a decline in listings in the past decade.
Since 1997, IPO numbers in the US are down a whopping 43 per cent. Put another way, US exchanges have 3,800 fewer companies trading publicly than they did in 1997.
One of the problems is how people trade in the US and Europe. What is the point of putting up an offering to the public when many retail investors no longer trade stocks per se but prefer to invest in market indices or trade the indices as a means of hedging their existing share portfolios?
On the institutional side, big asset managers such as pension funds grab handfuls of stocks to fulfil a pre-set quota or a series of mandates. To do this, they may use exchange-traded funds or baskets of stocks. They do not bother picking value or growth stocks on their individual merits.
Risk management via hedging of portfolios has become the mantra of share traders and institutions alike, as has employing hedge funds to smooth returns. The simple stock bet has lost its mojo.
So why would Prada list in New York or London, where it might be viewed as part of a basket of shares to be traded for strategic reasons rather than value and/or long-term growth purposes?
Prada has bothered to make the long-term leap of faith in Asia, and it is likely that the company will be rewarded. Sales at the group, which includes the brands Miu Miu and Church's as well as the fashion house itself, are estimated to reach close to $4bn by 2014 as its retail expansion into growth markets such as China and Brazil continues.
While the US and Europe persist in naming China and India as emerging markets not fit for widows and orphans, these markets have slowly developed into places where companies can grow organically.
Prada's listing may be viewed by some as a bet, but if it is, it appears to have been very carefully calculated.