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Third Julius Baer Wealth Report: Changing luxury consumption patterns across Asia indicate a shift towards quality over prestige

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Stefan Hofer, Emerging Market Economist and lead author of the report said, “Evidence continues to mount that Asia’s growth and wealth creation engine has decoupled from mature economies, and there are clear indications that China in particular is moving up the value chain. We anticipate that the number of HNWIs in Asia will grow from the estimated level of 2.17 million in 2013 to at least 2.82 million HNWIs in Asia (excluding Japan) by 2015.”

Key findings of this year’s Julius Baer Wealth Report focusing on Asia include:
  • The overall Julius Baer Lifestyle Index rose 8% in 2013.

  • In both US dollar (11%) and local currency (16.7%) terms, Mumbai saw the highest increase in cost of luxury goods and services over the past year.

  • While most of the twenty index constituents for Shanghai rose year-on-year, the moderation in luxury property prices constrained the overall increase. Excluding property and equally weighting the other items, Shanghai luxury living costs rose by 10% in renminbi terms (11% in USD terms).

  • In keeping with the 2012 outcome, the cost of university education has shown the highest increase for this year, up more than 30% for all markets. This raises important issues for parents and applicants, beyond simply rising costs.

  • The second highest average increase was seen in high-end wine, which increased more than 16% on average across all markets. Commentary by leading wine experts indicates that Asia’s wine tastes are rapidly evolving, suggesting that prestigious wine labels may rise at a slower rate in the future.

Now in its third year, the Julius Baer Wealth Report continues to focus on Asia, providing a comprehensive and exclusive analysis of the HNWI landscape in the region. Historically the Index covered Hong Kong, Singapore, Shanghai and Mumbai. This year new cities have been added including a comparison of luxury goods and services costs across Manila, Jakarta, Seoul, Taipei, Kuala Lumpur, Bangkok and Tokyo for the first time. It provides a cross section of data divided into ‘goods’ and ‘services’ for comparative purposes. Based on the cross-sectional data, Hong Kong, Shanghai, Singapore and Bangkok have the most items that cost more than the region’s average prices. In Mumbai, Jakarta, Kuala Lumpur, Manila and Taipei, most luxury services are below the regional average, but they tend to have goods prices that are more expensive. Education costs are excluded from this cross-sectional analysis.

As Stefan Hofer noted, “Japan’s economy is at a crossroads. In recognition of the profound changes that have taken place since September 2012, Tokyo has been included in this year’s report for the first time. We estimate that Japan is currently home to 2.1 million HNWIs, measured in US dollar terms. In contrast to other economies in Asia, where the report’s forecasts have included currency appreciation assumptions, Japan’s economic renaissance is, over the shorter term, created by yen weakness. Nevertheless, we are increasingly confident that Japan can cast off the yoke of deflation and drive further wealth creation into the medium term.”

He continued, “Interestingly, Tokyo does not stand out for being especially expensive, in particular on the goods front. Only ‘men’s tailoring’ and ‘women’s shoes’ are more expensive than the regional average.”

The Julius Baer Wealth Report 2013 makes note of the rapid change taking place in the luxury consumption area. Purchases of lower ticket items in the index, such as wine, cigars and watches are becoming more frequent and not seen as ‘one-off’ luxuries. Branding and prestige purchases are making way for buying value and quality, which suggests that, particularly in China, the luxury landscape is going to move away from some established market leaders.

Boris Collardi, CEO Bank Julius Baer, explained that “we know from our own experience in Asia that clients demand a very high quality service and the environment is competitive. Hence what is happening in the consumer space is also happening in wealth management, so service providers must demonstrate their value and innovate.”

Commenting on the expanded Julius Baer Lifestyle Index, Dr Thomas R. Meier, Head of Asia, added: “Asia’s economies are becoming increasingly integrated, and this in turn is driving growth and wealth creation, therefore it makes sense for the report to explore the index in more cities, and understand better the issues driving the pricing and selection of such goods throughout the region.”

This year the Julius Baer Wealth Report: Asia will again be available in Simplified Chinese.

The English and Chinese versions are for the second time available on the Next Generation iPad App which comprises the previous Julius Baer Wealth Reports and a number of Julius Baer Next Generation Investment Conference-related publications including two interactive magazines. The App can be accessed from www.juliusbaer.com/app or the iTunes App Store (search for ‘Julius Baer’).