'Do you know the surest way to go broke?'

At least for the present, the Swiss watch industry may be the exception that proves the rule. While demand in the West may be falling for the kind of workhorse watch prevalent in pre-cell phone days, it is still strong in other parts of the world. And luxury brands are booming, observers say.

From academics to consumers, fashion insiders to manufacturers, most agree that the prospects for the Swiss watch industry are rosy thanks to soaring Asian sales and the enduring social cachet of expensive watches. Demand for the likes of Swatch's Omega, Rolex and Cartier : particularly in China -- is solid and companies are reporting glowing earnings despite a surging franc, sky-high precious metals prices and a limping global economy. Switzerland is the world's largest watch manufacturer, and while it produces timepieces in all different price categories, it accounts for most of the luxury market.

'The environment for the Swiss watch industry is still good, especially in Asia ex-Japan,' said Patrik Schwendimann, head of consumer goods equity research at ZKB in Geneva. 'These days, they are the most important market and the positive news is that they really like Swiss-made products.'

From January to September, manufacturers exported about 754 million Swiss francs ($765.4 million) worth of products to China, up 59% year on year and about CHF2.16 billion to Hong Kong, up 43% during the same period, according to the Federation of the Swiss Watch Industry. This accounts for about one-quarter of the total value of CHF11.2 billion in watch exports recorded so far this year.

Major players such as Swatch, the world's largest watch maker, and Richemont, produced glowing first-half results. Swatch said sales rose by 33% while Richemont, owner of the Cartier brand, said sales rose 37% in the five months ended August 31. Rolex as well as many other privately-owned brands do not release figures. 'I am optimistic for the rest of the year and 2010 will be definitively a positive year,' said Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry.

It appears that reports of the watches' demise : trumpeted along with the proliferation of cell phones and other time-telling devices -- were premature. But while the covet factor for luxury watches is high, it is unclear what would happen to this market if demand for the lower end falls off a cliff. In other words, would expensive watches be so in demand if there is no popular product to compare it to? Watches in the exclusive luxury sector are roughly defined as costing above $3,000 while the accessible luxury sector is priced from about $500. The mid- and lower range sit below $500 and $200.
The China factor

At the moment, there is little danger that luxury watch sector will follow the same trajectory as the hat industry, another item that was formerly a must-have by all classes. While worries over rising Chinese interest rates and the possibility of speculative bubbles in emerging markets will constantly stalk the whole luxury sector, the longer-term fundamentals are strong, observers say. Analysts expect Chinese growth in demand of luxury goods in excess of 20% a year.

The country has become the world's second-largest consumer luxury goods market after Japan, thanks to double digit economic growth during the last decade and the ascendancy of the 'little emperors,' products of the one-child policy enacted in the late 1970s. This generation has both economic confidence and a willingness to spend money on themselves. According to the Merrill Lynch Cap Gemini World Wealth Report, there are 477,000 Chinese millionaires, a third more than in 2008.

'China's affluent population is growing at a very fast pace and so is their demand for status symbols,' said Ronald Jean Degen, a professor at Fundação Getúlio Vargas in Rio de Janeiro. Degen has written extensively on the luxury market in Asia and believes that part of the success of the Swiss watch industry is that it has stayed away from the trend to democratize luxury .

Analysts also say Asian demand for lower-priced watches remains 'positive.' Elsewhere, however, it is a different picture. Companies like Swatch, with a stable of 19 brands in various price categories, do not break down sales figures for each segment and for each region. However, anecdotal evidence points to the fact that many people in developed economies aren't buying purely functional timepieces as much as they used to. 'I wouldn't expect much growth in the coming years from this segment,' said Schwendimann.