3 Reasons Luxury Assets Are the Hottest Investment Category Among Asian Millennials
Practical, tech-savvy and value-oriented, Asian millennials are increasingly prioritizing investments that augment their social status and personal values.
Today, luxury consumption is more popular than ever in countries like China, Japan, South Korea and Singapore. Goods like fine wine and NFTs not only serve as status symbols, but have also come to define consumers' personal brands. So, who's driving this trend of luxury consumption? Millennials. Here are three reasons why Asian millennials have made luxury assets the hottest new investment class.
1. Social status and personal branding
While I was born in the United States, I spent my formative years internationally. My parents, both Chinese immigrants, traveled for work. As a result, I spent most of my childhood in Hong Kong and Beijing.
One thing that has always stuck with me is how different people view prestige. In the U.S., we admire individuals who achieve intellectual, artistic or financial success. However, many people will underplay the value of a prestigious education, job or investment portfolio, especially if they don’t have one themselves.
The opposite is true in China. Prestige and hierarchy take centerstage. Things that Americans keep private, like salaries, are public. Coveting success and prestige is much more out in the open.
Fine wine offers the perfect illustration of Chinese consumers’ desire for luxury. From 2002 to 2012, wine consumption grew 450%. And were Chinese consumers drinking Two Buck Chuck during that time? Absolutely not. They exclusively wanted Bordeaux, which is widely considered the preeminent wine region in France. According to Liv-ex, a wine-trading platform, Bordeaux accounted for 93% of the secondary wine market in Asia in 2010. (To illustrate this dominance, Google “only” has 92.47% of the search engine market.)
While Bordeaux's stranglehold has waned in recent years, the thirst for luxury goods and their prestige has not. According to Rocky Chi of The Drum, “Today’s Chinese consumers demand both aesthetic and symbolic meaning – with elegance, innovation and reputation all watchwords of any true luxury brand.” The cachet of brands like Gucci, Rolex and Louis Vuitton function as status symbols while reflecting favorably on people's personalities and social capital.
Chi notes Asian millennials are a driving force behind modern luxury consumption. Chinese millennials will account for 40% of the personal luxury goods market by 2025. Similarly, China is closing the gap on the U.S. for the largest luxury market in the world.
China may be one of the biggest players in the luxury-goods market, but it's far from the only one. Korean millennials made more purchases of 1 million won ($853) than their peers over 40 in the first half of 2021. Meanwhile, Japanese millennials use luxury goods to showcase their personal style, whether that means wearing cutting-edge fashion or sporting designer handbags.
It would be easy and misguided to dismiss this trend as millennials being entitled and self-absorbed. High-spending millennials are highly informed. As the demand for personalization surges, consumers want luxury assets that are as unique as they are. To quote Federica Levato, the author of the 2019 Bain & Company Luxury Study, Asia, "(Millenials) see themselves as critical actors of the creativity and conversations with luxury brands; they are returning to products, stores and physical interactions with brands to truly connect and engage emotionally with them."
2. Investment diversification
Since the dawn of agriculture, farmers have been warning people about the risks of putting all their eggs in one basket. While a teeming basket of eggs may work well in the short term, in the long term, it’s a recipe for disaster. (That or omelets.)
Historically, investors have built their portfolios around stocks and bonds. Asian millennials are taking a different approach as alternative assets become mainstream. Luxury goods offer a way to build wealth and portfolio diversity simultaneously, especially as Evergrande threatens to bring down the Chinese economy and the Hang Seng has fallen in value over the past two years.
Luxury assets also offer benefits not found in the typical 60/40 portfolio, including low volatility, direct ownership, inflation resistance, recession resistance and low correlation with the stock market.
It should come as no surprise that digital investments have investors' full attention abroad. China, Singapore, Hong Kong and the Philippines account for four of the top five countries with the most Google searches for “NFT” over the last year. Meanwhile, China and Malaysia have become global powers in the Bitcoin-mining industry. Even Japan’s financially conservative Watanabes are tapping into a broader range of asset classes than their predecessors.
3. Combine passion with profits
Modern millennial investors bear little resemblance to investors of the past. They’re digital natives. They chafe at hard sells. They want compelling narratives that inspire them to invest or diversify their portfolios.
Simply put, millennials are more values-oriented than previous generations. Investment opportunities must align with their personal values and deliver purpose beyond profit. It’s why Vinovest touts its sustainable practices while Stash, a personal finance app, lets investors allocate funds to women and BIPOC-led companies.
I’ve seen this transformation from economizers to value enthusiasts take place in fine wine. That’s in part because China is one of the fastest-growing wine markets in the world, with consumption more than doubling from 1996 to 2018. In a few years, it may even challenge the United States as the leading consumer of fine wine.
As more people become interested in wine, there has been a corresponding surge in the number of fine-wine investors. People that I’ve spoken to mention combining their passion for wine with their investment strategy. This fusion enables them to hone their personal brand, putting their money to work for their interests, causes and values. The fact that they can have their profits and drink them too doesn’t hurt either.
Asian millennials are redefining investors’ relationships with luxury assets. Practical, tech-savvy and value-oriented, they're increasingly prioritizing investments that augment their social status and personal values. With advances in technology and the growth of alternative assets, doing so has never been easier or more popular.