Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

Bling is back. That's the message from the European luxury groups that have reported profit over the past few weeks. But valuations are getting to be as expensive as a Birkin handbag. 

Hermes International and LVMH Moet Hennessy Louis Vuitton SE reported strong fourth quarter sales, while Salvatore Ferragamo SpA set out plans to expand at twice the market rate through to 2020. Kering, which reports its full-year earnings on Friday, may be boosted by the turnaround at Gucci.

These reports are flattered to some extent by easy comparisons with the period a year ago, when China was suffering from stock market gyrations, and many of the nation's shoppers had put off trips to Europe after the terrorist attacks on Paris.

Bouncing Back
The luxury market is set to resume growth this year as Chinese demand revives
Source: Bain, Altagamma, Exane BNP Paribas
2017 is Exane BNP Paribas's forecast for the first half of the year

Even so, a broader-based recovery is taking hold.

Chinese big spenders are back. Some luxury brands have even pointed to improvements in Hong Kong and Macau, the regions hardest hit by China's anti-extravagance campaign. Life in the "hard" luxury market of watches and jewelry, where difficulties looked more entrenched, may be getting easier.

While 2016 was the worst year for Swiss watch exports since the financial crisis, over the past few months, declines have been less steep. And that is reflected in positive comments from Cie Financiere Richemont SA and The Swatch Group AG.

Watching Brief
The decline in Swiss watch exports is easing, raising hopes for Richemont and Swatch
Source: Federation of the Swiss Watch Industry

The outlook for the European luxury brands looks more positive than it did a year ago, but valuations are also much richer. They're up with events, and without a significant acceleration in sales from here, or an M&A boom, it's not clear how much further they have to run.

The Bloomberg Intelligence Luxury Peer Group has risen by 20 percent over the past year. It trades on a price earnings ratio of 18.6 times, ahead of both the MSCI global consumer durables and apparel index and the S&P 500.

Premium Positioning
Global luxury goods groups have regained their premium to the broader retail and consumer sectors
Source: Bloomberg Intelligence

There are certainly some good reasons to be optimistic about the luxury climate. China's strength should continue, while tax cuts for wealthy Americans might stimulate demand for designer clothes and fancy watches once more.

Analysts at Exane BNP Paribas forecast that the luxury market could rebound to growth of more than 5 percent in the first half of this year. That's a big jump from a broadly flat market in 2016.

The Rooster Crows
Companies with exposure to Chinese shoppers should benefit from the country's recovery
Source: Exane BNP Paribas

What's more, the prospects for M&A are rising, with the big luxury goods groups having plenty of firepower for deals. Burberry Group Plc, Michael Kors Holdings Ltd. and Tiffany & Co. have all been mooted as potential targets. The more benign environment and stronger performance at Puma might finally prompt Kering to part with its 86 percent stake.

But comparisons will get harder in the second half. Luxury's first green shoots emerged in the final six months of 2016, so companies can't count on sales figures being flattered to the same extent as they were in the first half. And some political uncertainty remains, from President Donald Trump's policies on trade and a swathe of European elections from France to Germany. Luxury thrives when consumers feel happy and confident. That looks to be the case right now but can't be counted on forever.

Valuations suggest a full-on bling extravaganza. But that party might not last forever.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at

To contact the editor responsible for this story:
Jennifer Ryan at