The majority of China’s millionaires are in the process of forming a collection – be it art, classic cars, coins or memorabilia.
That’s the standout figure from China’s latest Hurun Report, which states that 64% of the country’s high net worth individuals (HNWIs) are now amassing collectibles.
Like many collectors in the West, these buyers state that they collect mainly out of passion rather than profit – and who can blame them? Collectibles are fascinating, enjoyable, and often, beautiful.
While many join the market for collectibles armed only with a fascination and their chequebooks, it is hard not to think of these valuable objects in terms of the potential profits they may bring in the future.
And it is even harder to ignore the evidence…
The 2013 Wealth Report from Knight Frank reveals that nine key collectibles markets grew by an average 175% over the previous 10 years to third quarter 2012, far outstripping the Dow Jones’ 32% increase over the same period.
1 year | 5 year | 10 year | |
Classic Cars | +23% | +115% | +395% |
Coins | +25% | +93% | +248% |
Stamps | +9% | +72% | +216% |
Fine Art | 0% | +92% | +199% |
Fine Wine | -19% | +7% | +166% |
Jewellery | +9% | +77% | +140% |
| Chinese Ceramics | +0.4% | +54% | +85% |
Watches | +8% | +27% | +76% |
Furniture | -9% | -12% | -18% |
| KFLII (overall) | +6% | +64% | +175% |
These same markets also beat the UK’s FTSE 100 Index, which grew by just 54%, even when taking into account the value of any dividends paid.
Diversify with tangible investments
When mainstream investments are at their most vulnerable, tangible investments such as these are often at their strongest.
The past five years have seen nothing but turmoil for the world’s economy, yet throughout this struggle the Knight Frank Luxury Investments Index returned solid growth of 64%.
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Rachel Pownall, an associate professor of finance at Tilburg University in the Netherlands, explains the appeal of collectibles as investments.
“Their performance tends not to fluctuate with that of stocks and bonds and they can hold their value during periods of expected inflation,” she says.
“They therefore offer an alternative form of portfolio diversification across assets and economic cycle.”
In a previous article for NuWire Investor – Collectibles Join the Mainstream – I discussed last year’s McKinsey & Co’s report, which demonstrated that the year-end funds in global alternatives climbed to a record high of $6.5m in 2011. Not only did the market strengthen, it reached new heights.
The evidence is mounting that this is the time to get on board the collectibles market.
While the stock market has enjoyed a wonderful start to 2013, history shows that those who fail to diversify are taking a huge risk.
Make money from the world’s wealthiest
The long-term picture at the very top of the world’s wealth pyramid looks rosy.
According to the Knight Frank report, the number of billionaires living in the US and China is set to grow by 103% and 214%, respectively, in the next 10 years, with emerging economies such as Brazil and Indonesia sharing similar growth of 157% and 190%.
And who will be the one to sell these collectibles to them? Join the market now and it could be you – at an impressive profit.While stocks and bonds will likely form the bulk of these individuals’ investments, exciting collectibles buys that will make them the envy of their peers, such as art and classic cars, will also surely play a prominent role.
Take advantage of those that buy from the heart. That may sound unscrupulous, but these passionate collectors will pay whatever it takes once they have set their hearts on an item.
It is these same passionate collectors who propelled an engagement ring that Napoleon gave to his beloved Josephine to $1.7m at auction in March 2013 – an 8,400% increase on its $20,000 estimate.
If you can keep your cool, there’s plenty of profit to be made.
Avoid the “popularity over profits” trap
Yet make sure you do not fall into the “popularity over profits” trap.
Many of those collectibles that are currently the most popular with Asian buyers are not necessarily those that have the most profit potential. That’s because they are available in too large a number.
For example, watches rank as the second most popular asset class, with the average Chinese super-rich male owning six luxury timepieces, according to the Hurun Report. Yet watches have shown a comparatively low increase of 75% over the 10-year period because of their ubiquity.
You need to hunt for collectibles that are in demand and scarce.
Rare stamps may not have the same lustre as a Patek Philippe watch, yet they have traditionally brought some of the highest returns, along with coins and art. I’ve long been an advocate of the finest, rarest, and most-sought after stamps as an investment, as has bond king Bill Gross, who was quoted in 2007:
“Four times profit, it’s better than the stock market.”
