As the number of wealthy Asian individuals rises, the desire for luxury brands and aesthetics is as strong as ever, for all things from wine to jewellery to cosmetic procedures.
This is particularly noticeable in China, where affluent consumers now see luxury as “a way of life and not just the occasional purchase of a good or service”, according to Julius Baer’s annual Asian Wealth Report, released yesterday.
Julius Baer estimates that since 2012, excluding Japan, the number of high-net-worth individuals in Asia has grown 19% to 2.2 million from 1.9 million. China's HNWI population increased to 1.08 million in 2013 from 885,000 in 2012.
The survey notes that luxury watches for example, only purchased once a year in 2011, were purchased on average every six to 12 months in 2012. And more than 50% of consumers bought top wines, spirits or cigars at least once a month in 2012, indicating a “growing awareness of a range of luxury items, in particular ‘one-off’ consumables, which are then purchased repeatedly and become part of their lifestyle”.
While wealthy Chinese consumers prefer Chanel, Louis Vuitton, Gucci and Christian Dior, they are expanding their shopping habits to more contemporary brands, such as Marc Jacobs, Shang Xia, Stella McCartney and Alexander Wang.
Showboating expensive wines is passé, as buyers become less interested in owning the supreme, prestigious labels and more interested in broadening their horizons to demonstrate a true knowledge of wine varieties.
And while high-end aesthetic procedures continue to prevail, Asian patients will likely “gravitate more towards non-invasive options when considering their treatments”, which includes botox, fillers and laser therapy, the report says.
Out of all the goods and services measured on the Julius Baer Lifestyle Index, education experienced the highest year-on-year rise. The annual cost of attending Harvard or Oxford rose 30% on average in 2013 over the last year to $78,076 from $59,757. This spike is more than double the surge of the next highest categories in the index, which are wine, hotel stays and cigars.
And as education remains high on Asians’ list of priorities – many view sending their children to the most prestigious colleges and universities in the US and the UK as key for future success – rising tuition costs are a “major issue” for Asian families, Stefan Hofer, executive director at Julius Baer based in Hong Kong, tells AsianInvestor.
Although rising tuition fees at top UK and US universities will likely continue as a trend, there is no indication that wealthy Asian families will stop sending their kids to school abroad, says Angela Watkins, Asia head of media relations at Julius Baer.
Meanwhile, the cost of wine increased by 16.4% in 2013 over last year, with Julius Baer pricing a bottle of Lafite Rothschild 2000 at $4,174 compared with $3,587 the year before. One night at the Four Seasons or Ritz Carlton ticked up 15.7% to $578 from $499, and a box of 25 Cohiba Siglo VI cigars rose 13.1% to $1,171 from $1,035, according to the report.
On the question of decoupling, Julius Baer argues that while Asian markets will rely on international investors and capital markets for a time, mostly due to investment globalisation, there is “mounting evidence that Asia is becoming ever more resilient in the face of economic shocks”.
The report notes that unemployment levels in emerging markets are at just under 6% in 2013, compared with over 8% in developed economies.
“It’s a simple argument but it’s a straightforward reason why we believe decoupling is done. Look at the labour market. Look at wage growth. That fuels consumption and makes the reliance on mature economies less and less,” Hofer tells AsianInvestor.
All of this will establish a “new platform for growth and wealth creation in Asia for Asia”, says the report.
The Julius Baer Lifestyle Index rose 8% in 2013, just under last year’s growth. The Swiss bank notes that the cost of living in luxury for Asia’s high-net-worth individuals continues to outpace standard measures of inflation, as corresponding inflation indicators in Hong Kong, Singapore, Shanghai and Mumbai have risen 5.3% this year over last.
In addition to the four cities listed above, starting from 2013, the company includes Taipei, Jakarta, Kuala Lumpur, Manila, Bangkok, Seoul and Tokyo in the index.
The report also outlines high-net-worth individuals' investment behaviour, pointing out that inflation remains a concern after the surge of global liquidity caused by central banks printing money will impact all asset classes, including equities, bonds, commodities and currencies.
To avoid inflation, Hofer says some global HNWIs are open to investing in riskier assets such as hedge funds or private equity, but notes that the 2008 financial crisis has tempered appetite for illiquid investments somewhat.
“Nothing has changed in terms of [HNWIs] having a high-risk tolerance, but in this post-financial crisis [environment], there is a greater emphasis on liquidity, which will penalise a lot of hedge funds and private equity funds,” Hofer says, adding that many Asian investors seek daily, weekly or monthly liquidity, which many hedge funds cannot provide.
Julius Baer notes that inflation-linked bonds, such as Treasury inflation protection securities (Tips), have built-in mechanisms to compensate for capital depreciation through inflation. There are also ways to hedge inflation – to protect against rising yields, the bank entered into interest-rate swaps, for example.
Julius Baer defines HNWIs as having $1 million of investable liquid money outside of real estate.