What I'd Like for Christmas 2007

On a smaller scale, you can see the same thing going on throughout all the emerging markets, from Bangkok to Budapest. As these people make money, they want to flaunt their new wealth. The same thing has happened in every industrial revolution in history.

Of course, you run the risk of pirated copies, but veteran observers in Hong Kong say they are witnessing a curious phenomenon. Shoppers from the former British colony, who have long been accustomed to luxury goods, get on the ferry to the mainland to buy cheap knockoffs. Coming the other way: the newly rich mainland Chinese, who are coming to Hong Kong to buy the real thing. They've never owned it before.

The growth in luxury goods sales isn't just about emerging markets, either. Sales are rising quickly in industrialized countries, too, even if it's at a more modest 7% or 8% clip.

In the West, says Reyl, a picture of consumer spending used to look like a pyramid, expanding from a small luxury goods industry at the top to a huge mass-market industry at the bottom. Today, she believes, "it looks more like an egg shape." The top and bottoms are growing. As an investor, you don't want to get caught in the middle.

Among her favorite stocks is Valentino, which trades over the counter and is a play on the Hugo Boss brand. Valentino owns a majority stake in the chic German design house, which accounts for about three-quarters of its sales and is taking off in Russia and Eastern Europe. Reyl sees earnings growth of 15% to 20% a year for the next four or five years.