Uncertainty among High Net Worth (HNW) individuals is growing amidst concerns over the global macroeconomic environment, with important consequences for luxury spending and investor preferences.
HNW sentiment is turning more cautious; the Schroders European Wealth Index recently found that 91% of Italians expect financial issues to cause them concern over the coming year, while UK and Spanish investors followed closely behind at 88%.
Such findings are substantiated by reports of demand for Swiss safety deposit boxes increasing as investors rush to hoard gold bars, bank notes and other valuables as a hedge against loose monetary policy in Europe (Reuters).
“ Investors are rushing to hoard gold bars, bank notes and other valuables as a hedge against loose monetary policy in Europe ”
This uncertainty may act to shift the profile of luxury spending, with the wealthy preferring to spend on items with lasting intrinsic value such as property or art, rather than consumables which, by their very nature, must be consumed to be enjoyed.
Signs are already manifest in the Affluent Luxury Living Index, which assesses the changing cost of a luxury lifestyle (Stonehage). While the consumables category, which includes the prices of Beluga Caviar and Cohiba Siglo V Cigars, was down 14.5%, the housing category was up 4.4% in the year to April.
This is corroborated by numerous reports of increasing demand for luxury property. International sales in the US are up 24% to $82.4 billion this year, while prices of prime property in Germany and London have surged 60% and 51% respectively in the past 3 years.
“ Around 50% of Savills buyers in the year to date have been driven by Eurozone fears, seeking sanctuary for their money ”
Savills are clear on the primary reason for this, stating that “around 50% of our buyers in the year to date have been driven by Eurozone fears, seeking sanctuary for their money.”
Investor behaviour is also likely to become increasingly prudent. Spectrem recently found that Ultra High Net Worth investors ranked diversification (91%) as a top investment criterion, second only to risk (95%) (see page 5).
Ledbury’s Client Landscape report further endorses this evidence, finding that HNW individuals invested 37% of their wealth in property, 18% in cash, and only 17% in stocks in 2012. It is therefore crucial for those selling to the wealthy to recognise and accommodate this uncertainty.
For wealth managers, this may require discussing alternative investments or capital preservation strategies, such as principal-protected structured products, with clients. For luxury brands, it may be particularly effective to focus on providing products which can simultaneously be enjoyed whilst holding a long-term intrinsic value.
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