I have done 3 resets, none of my favourites have synced across. I left it for 6 hours and I still had the same 20 contacts synced across, I have 400 on my phone.
Must say I am disappointed so far with the watch, I think it'll be going back to Apple... Can't even digital touch my wife as we share same iCloud ID for photo/storage sharing. That's more important. Was really looking forward to this.. Oh well.