As the Chinese have gotten richer, so have their tastes. The luxury goods market, once dominated by the world-beating Japanese, is now focusing a large amount of its attention toward China, now the second largest luxury goods market behind the U.S. (Japan is now third largest).

"Luxury sales in mainland China rose 30% in 2010 and are forecast to grow 25% at constant currencies this year to 11.5bn poudns, while U.S. luxury sales are set to grow 8% to 52bn  pounds in 2011, after rising 10% at constant currency terms in 2010 to 48.1bn pounds," according to a Bain & Co. report quoted by The Guardian.

China is now one of the largest luxury auto markets in the world. Audi, for example, almost sold more cars in China last year than it did in Germany. (Audi is the car of choice of the Chinese Communist Party, which spent around $13B on official cars last year). Sales of Lamborghinis tripled last year, while Rolls-Royce sales increased by 146%, according to Jonathan Watts of The Guardian.

The impact is not limited merely to deluxe cars. European luxury goods makers are flocking to Mainland China and Hong Kong to spread brand awareness. The Prada Group, for example, recently held an IPO in Hong Kong, a clear sign that Prada is targeting Asian consumers and investors. Coach (NYSE: COH) is similarly aiming to hold an IPO on the Hong Kong Stock Exchange this year, according to Nate Weisshaar of Motley Fool. (Anecdotally, I had recently traveled to Hong Kong and seen very long lines outside of haute couture stores, like Prada and Luis Vuitton.)

Chinese millionaires are even adopting European-style Polo, which is a bit ironic given the sport's popularity during the Tang Dynasty (618-907 AD) after it was imported from Persia.

Charles Lewis Sizemore of the Sizemore Investor Letter suggests investing in Diageo (NYSE: DEO) and Coach. Diageo, a U.K.-based premium alcoholic beverage company, has very visible global brands (Johnnie Walker, Smirnoff, and Guinness, among others) and has a proven track record of profiting in emerging markets. Coach, meanwhile, is seeing solid sales growth in the developing world and forecasts $500M in revenues from China by 2014.

To help you begin your own research into these stocks, here is a list with some quick facts about Diageo and Coach. (Click here to access free, interactive tools to analyze these ideas.)

List sorted by market cap.

1. Diageo: Wineries & Distillers industry with a market cap of 52.26B. It produces and distributes a collection of branded premium spirits, beer, and wine. The range of premium brands it produces and distributes includes Smirnoff vodka, Johnnie Walker scotch whisky, Baileys Original Irish Cream liqueur, Captain Morgan rum, J&B scotch whisky, Tanqueray gin, and Guinness stout. In addition, it also has the distribution rights for the Jose Cuervo tequila brands in North America and many other markets.

2. Coach: Apparel Footwear & Accessories industry with a market cap of 19.62B. It is a marketer of fine accessories and gifts for women and men. Coach's product offerings include handbags, women's and men's accessories, footwear, business cases, jewelry, wearables, sunwear, travel bags, fragrance, and watches. Accessories include women's and men's small leather goods, novelty accessories, and women's and men's belts. Wearables consists of jackets, sweaters, gloves, hats, and scarves, including both cold weather and fashion.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Andrew Dominguez does not own any of the shares mentioned above.

The Motley Fool owns shares of Coach and Diageo. Motley Fool newsletter services have recommended buying shares of Diageo and Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.