COVID-19 impact on luxury investments: Hermès bags retain pole position

COVID-19 had a huge logistical impact on the global marketplace for luxury investments in 2020. Hermès handbags once again topped the Knight Frank Luxury Investment Index (KFLII) with prices rising by 17 percent, according to the index compiler AMR.

An established online auction presence and the appetite for relatively affordable luxury pick-me-ups during the COVID-19 pandemic, particularly in Asia where many bag collectors are based, helped the asset class retain pole position, the Wealth Report - Knight Frank has said.

The art market, however, did not fare quite so well with the auction-tracking AMR AllArt Index dropping 11 percent in 2020. But with so many factors impacting the market, there was no single reason for the fall in average values, the report said.

The biggest change was a shift towards private sales at the major auction houses. The volume of all sales that were publicly auctioned at Sotheby’s and Christie’s last year was down 26 percent and 46 percent in 2019, respectively. The problem was compounded by the slowing in supply of quality works as consigners who could afford to wait preferred to sit it out at home, it said.

The biggest change was a shift towards private sales at the major auction houses

Nevertheless, there was still plenty of enthusiasm from buyers.

With a new emphasis on home working, there was a surge in demand from collectors sprucing up their homes. By the second half of the year, a new kind of auction sale had emerged, catering to this need with eclectic showcases mixing art, antiques and collectibles, the report said.

While traditional collectors’ tastes have been driven by art history, newer collectors are just as likely to be turned on by what’s trending on social media, and this shift continued under lockdown, it said.

Another trend was that the number of individual artist records halved last year compared with 2019, most of the winners were young artists, increasingly referred to as ‘Red Chip’.

Many of these ‘Red Chip’ artists have become so popular with collectors in Hong Kong that auction houses are increasingly pivoting their sales in this direction, the report said.

The coloured diamond market was also somewhat stymied by the pandemic, the report said.

“The logistical lockdown simply made it impossible to conclude transactions in a timely manner,” the report noted, adding “It took much longer for sellers to ship diamonds overseas, and for buyers to transfer funds and to ultimately receive custom-made items in a piece of jewellery.”

Prices remained flat as a consequence, but this year could see a bounce, it added.

Scoring second place in KFLII, wine markets experienced strong growth in 2020 following a year of consolidation, the report said.

Unlike after the global financial crisis, the wine market has held its nerve, merchants did not mark down prices and the market has been stable. Investors are about, and even Bordeaux prices feel like they are firming up, the report said.

Scoring second place in KFLII, wine markets experienced strong growth in 2020 following a year of consolidation, the report said

The index of viticultural icons, up 13 percent, outperformed broader market stalwarts such as Bordeaux first growths (+5.8 percent) in 2020, but couldn’t keep up with the still rampaging older vintages of super-Tuscans that saw annual growth of 18 percent. Back vintages of Champagne (+14 percent) were also notably strong. Burgundy was up 11.5 percent. While COVID-19 has disrupted luxury markets in the short term, climate change is the bigger influence for the wine trade, the Knight Frank report said.

Unlike our fine wine tracker, the Knight Frank Whisky Index (KFWI), compiled by Rare Whisky 101, lost some momentum in 2020, dropping by 3.5 percent.

Against many other investments that’s not such a disaster, but compared with 2018’s circa 40 percent increase the volatility of ultra-rare top-end whisky as an investment is evident, the global report said.

The broader market rode out the pandemic in better shape, with Rare Whisky 101’s Apex1000 Index increasing by almost 8 percent during 2020.

After a sluggish 2019, where the value of the HAGI Top Index – that was used to track the value of classic cars – fell by 7 percent, 2020 saw cars race back up to third place in KFLII with growth of 6 percent, said The Wealth Report – Knight Frank.

Ferraris revved up particularly strongly, with the HAGI F Index rising 14 percent. For the collector and auction enthusiast, however, last year was a bit of a damp squib with many events cancelled as a result of the pandemic, and sales postponed or moved online, it said.

The pandemic may well have made owners value their cars even more because they represent personal freedom as well as a potential inflation hedge in the future, it said.

Volumes should normalise further in 2021, with classic car events and live auctions once again able to take place as the Covid crisis becomes more manageable due to vaccines, the report said.