Across the world, the spending on luxury goods of Ultra-High-Net-Worth Individuals (UHNWIs*) is predicted to increase in 2014, according to the results of the Attitudes Survey reported in The Wealth Report launched in a press conference jointly hosted by Knight Frank and Bank of China International Limited in Hong Kong today.
Over a third of all the survey’s respondents say they expect their clients’ spending on luxury goods to rise this year, while only 7% are predicting a fall in expenditure. In Asia, according to the survey results, about 39% of the Asian UHNWIs expect to increase their spending in luxury goods this year. This is especially bullish in India and Indonesia where more than half of the UHNWIs are looking at increasing their spending on luxury goods. Likewise in Africa, almost half of respondents anticipate higher levels of luxury purchasing activity.
“In absolute terms, Asia still has the largest proportion of the world’s luxury brand outlets, but growth is slowing. Many CEOs of global luxury brands are pointing to North America as the most important market for growth over the next five years,” says Mr James Lawson, Director at Ledbury Research, an international luxury market research firm. Bain & Co. expected luxury spending to increase by 2.5% in China during 2013, compared with 4% in the US.
However, as Lawson points out, a significant proportion of luxury spending in the US, as in Europe, is now being driven by the growing number of Chinese tourists visiting the country.
Lawson continues, “A lot of brands expanded too quickly in China. What they have now realised is that many Chinese consumers like to shop abroad. Prices are cheaper and there is more cachet attached to buying, say, a Gucci handbag in Milan than in Shanghai.”
Thomas Lam, Director and Head of Research & Consultancy, Greater China of Knight Frank, says, “According to the Boston Consultancy Group’s State of Luxury 2013 report, 25% of Chinese luxury spending occurs overseas, while the findings of the Hurun Report’s Chinese Luxury Consumer Survey indicates that 94m Chinese tourists were likely to travel outside the country in 2013 – an increase of 15% on 2012. Almost 65% of Chinese UHNWIs say travel is their preferred leisure activity.“
Investments of Passion – Asian UHNWIs most concerned about capital growth
Asian UHNWIs have the sharpest eye on investment potential, with a quarter primarily concerned with capital growth compared to the global average of 16% according to the Attitudes Survey.
About half of the respondents in Asia said pleasure was their main motive for spending on collectables or “investments of passion”.
Investments of passion such as art and classic cars are also growing in popularity around the world, according to The Wealth Report’s Attitudes Survey. For example, 49 per cent of the survey’s respondents said their clients were becoming more interested in art.
Art, wine and watches emerge as the top three favourites among Asian UHNWIs, followed by diamonds and jewellery, as the assets for investment.
"There has always been strong demand for large denomination coins in the US,” says Ian Goldbart, Managing Director of leading auctioneer Baldwins, “but we are seeing growing interest in China, where the market has boomed over the past five years, and also India and Russia.”
Thomas Lam adds that rare stamp values are rising, particularly in China, India and key commonwealth markets. The Stanley Gibbons China 200 rare stamp index rose 36% between 2011 and 2012.
When asked about his favourite investment of passion, Lawrence Wong, Alternate Chief Executive and Head of Business, Private Banking of Bank of China International Limited, says, “It is luxury property, gems or cars.”
Knight Frank Luxury Investment Index (KFLII)
In terms of the performance of Investments of Passions, the latest results from the Knight Frank Luxury Investment Index (KFLII), which are also featured in The Wealth Report, show that classic cars have grown in value the most (+456%) over the past 10 years.
Overall, KFLII, which tracks nine asset classes including cars, art, wine, watches and stamps, grew by 8 per cent in 2013 and 179% per cent over a 10-year period.
Andrew Shirley, Editor of The Wealth Report, says, “This performance shows that objects that are beautiful to look at can also make good investments, but markets such as art can be very volatile and the performance of an index will not necessarily be reflected by individual works.”
Africa – the rising continent for luxury spending
Knight Frank’s new Luxury Opportunity Index, compiled by luxury market analyst Ledbury Research for The Wealth Report, highlights the continent’s growth potential. Of the top 10 locations identified in the index, five are in Africa.
However, it is the Middle East that occupies the top three spots in the index, which tracks those countries with the fastest-growing luxury spending potential in the short and medium term by measuring growth in four areas:-
• Number of luxury retail outlets
• Premium air travel traffic
• Wealth creation
• Economic growth
Download The Wealth Report 2014 – English version