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Asset Management / Wealth Management
For those who can afford them, passion investments make sense
Luxury purchases beat inflation, outperform most traditional asset classes, but NFTs are another matter
Tom King 29 May 2023

While most people are tightening their belts to cope with the effects of inflation and sluggish economic growth, the ultra-rich in Singapore and the rest of Asia-Pacific continue to indulge in investments of passion.

Purchases of luxury watches, jewellery, luxury handbags, and diamonds continue to beat investments in mainstream asset classes, according to the latest Knight Frank Luxury Investment Index (KFLII).

The index, which tracks the value of 10 investments of passion, rose by a healthy 16% in 2022, comfortably beating inflation and outperforming most traditional investment classes, including equities and even the recently much favoured gold.

Nicholas Keong, head of the private office at Knight Frank Singapore, shares: “Passion for these luxury goods, which were originally collected for pure personal enjoyment, has now also evolved into investment-grade assets. It speaks of a very innate human desire to savour and enjoy what is rare and precious.”

In Singapore, ultra-high-net-worth individuals (UHNWIs) named watches, wine and rare whisky as their top investments of passion. About 59% of respondents in the city-state ranked watches as top investment of passion to be sought after in 2023, followed by wine and rare whiskey, both with 45% of responses.

The increase in Singapore’s Consumer Price Index over the past 10 years from 2012 to 2022 was about 12.6%; in other words, these popular investments of passion outpaced inflation by quite a fair bit over the long haul, even with the higher-than-normal inflation of 6.1% in 2022.

But buyer beware!

As “alternative” investments, they have been growing in popularity as Singapore, a regional wealth hub, continues to climb the ladder of affluence.

In the wider Asia-Pacific region, UHNWIs are also most interested in purchasing watches (48%). This was followed by wine (45%) and jewellery (38%).

But there are cautionary tales for investors who followed their passion and ploughed into an asset that appealed to their sentiment, only to find that the path to future wealth led to a dead end, for now.

The much-hyped non-fungible tokens (NFTs) disrupted the art world in 2021 with digital images like the CryptoPunk and the Bored Ape Yacht Club series regularly setting new price records and selling for millions of dollars.

By the end of 2022, however, the nascent sector was already feeling the heat on valuations as cryptocurrencies, a source of much of the wealth for NFT buyers, slumped, and a number of high-profile crypto exchanges hit by the contagion were shuttered.

Some of the highest-profile collectors have since admitted that many of the NFTs they have bought are now probably worthless.

Knight Frank says the views of UHNW respondents are evenly split when it comes to NFTs.  Around a third believe they still have potential, while an equal number say they have always been sceptical.

Interestingly, respondents from the Chinese mainland were more upbeat than others with 64% retaining a positive view on NFTs as an investment.

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