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David Herro Comments on Hengdeli Holdings

April 08, 2014 | About:
Holly LaFon

Holly LaFon

A large detractor from the Fund’s performance for the past quarter was Hengdeli Holdings (HKSE:03389), the large luxury watch retailer in the greater China region. The company recently reported weaker than expected results due to lower demand for luxury watches in China and Hong Kong in 2013. After reporting a number of years of double-digit growth, the luxury watch market was flat year-over-year in 2013. This slowdown is a result of a government crack-down on gifting as well as weakening macro trends in China. While the high end of the market remains under pressure, demand seems to be improving in the mid-end segment, where Hengdeli is more heavily exposed. We believe that Hengdeli’s results will begin to improve when demand in China recovers more broadly, which we expect to occur within the next few years as a result of the significant wealth creation still occurring in China today.

From David Herro (Trades, Portfolio)'s Oakmark International Small Cap Fund: First Quarter 2014 Commentary.

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