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Mood More than Money

Editorial

Nov 18, 2011 1:54 AM   By Avi Krawitz
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RAPAPORT... Amid all the blaring headlines of economic doom and gloom, it may be difficult to believe that we are living in a period of tremendous wealth in the world. There are a growing number of super-rich people out there and they are spread across an increasingly diverse geographical landscape.

While one would think that the volatility in financial and commodities markets this year would impact their spending habits, a recent report “World Ultra Wealth Report’ 2011” from Wealth-X, a provider of market intelligence about the super affluent, stressed that economic trends in fact have little effect on the ‘ultra high net worth’ (UHNW) community.

“Although the global economy is facing uncertainty, the spending, giving and lifestyle habits of UHNW individuals have not been severely impacted,” explained Wealth-X, a Singapore-based company. “The UHNW community is somewhat insulated from macro trends in the global economy: simply put, the world’s wealthy elite are in a class of their own.”

Classifying an UHNW as an individual with a net worth above $30 million, Wealth-X reported that there are 185,795 such individuals in the world today whose combined net worth totals $25 trillion. Of these, 1,235 are billionaires with a combined net worth of $4.18 trillion, while 44 percent of the total, or 81,520, are valued in the “bottom” category with a net worth  between $30 million and $49 million (see table - source www.wealthx.com).

North America maintains the highest concentration of UHNW’s, with 62,960 individuals, of whom 57,860 are in the U.S., followed by Europe (54,325), Asia Pacific (42,524), Latin America (15,100), Middle East (4,490), Oceania (3,255), Africa (2,410), and Central Asia (730). Significantly, though not surprisingly, Wealth-X forecasted that the UHNW population in Asia-Pacific will surpass that of Europe in 2024 and will overtake the U.S. by 2032.

Wealth-X’s conclusion, aimed at wealth managers, stressed, “Understanding the estimated market size and areas of concentration will help private bankers, asset managers, not-for-profits and luxury brands map various strategies to reinforce their presence in countries and cities where they already exist, while at the same time, eyeing expansions in new, unknown markets.”  

The same is obviously true for the diamond industry and the luxury sector at large. The willingness of wealthy consumers to spend during tough times, and the overall growing wealth in new emerging regions such as Asia Pacific, has contributed to ensuring the industry’s recovery post 2008, and continues to do so. Researchers at Bain & Company estimate that the global market for luxury goods rose 8 percent to $250 billion (EUR 185 billion) in 2011, while the jewelry segment is expected to outpace other sectors with an increase of 15 percent.

It is important to stress, however, that while the super-rich may be immune to macro-economic trends, the diamond market is not, and certainly neither are the majority of today’s diamond consumers. The ultra-wealthy are in a class of their own, offering significant opportunities for the diamond market. But they are not the ones driving industry growth.

The middle to high-income earners, a rapidly growing sector in emerging economies, and the core of mature economies are the backbone driving diamond jewelry sales. And they are very much influenced by global economic trends, today more than ever. As financial markets turn, so do their spending habits.

A study published earlier in the year by McKinsey & Company noted that China’s penchant for luxury is rapidly trickling down to broader swathes of consumers, including those who traditionally would not be considered viable target consumers. “China’s 13 million upper-middle-class households (with incomes between $15,000 to $30,000) are stretching their budgets to purchase luxury watches, jewelry, handbags, shoes, and clothing – goods that until very recently were the exclusive domain of the wealthy,” McKinsey wrote in the report entitled ‘Understanding China’s Growing Love for Luxury.’ “Many of these sock away cash until they can afford their prized possession.” McKinsey estimated this group currently accounts for 12 percent of China’s luxury market and their share will grow to 22 percent by 2015.

The demographic is more pronounced for the diamond industry where engagement and bridal purchases account for approximately 40 percent of the market. The bulk of those sales are made to young, middle-income earners willing to splurge for their special occasion. But in volatile economic times, they are also willing to compromise on that purchase for the sake of financial survival. 

It is therefore understandable that the diamond industry emerged from the 2008 recession as an industry influenced by mood. Any deep shock has a lingering effect and since 2008, and certainly during 2011, diamond manufacturers and dealers have been on high alert to economic trends and the psychological impact they may have on the market and on consumer confidence.

It is little wonder then that negative sentiment enveloped the industry in August, when Standard and Poor’s lowered its rating on U.S. long term debt and the European debt crisis entered a more critical phase. Both events have continued implications for the global recovery – most likely on the wealth of middle income earners and on their attitude as well. And in the fast-and-easy information age, attitudes can change at any moment in response to any market change. The new reality is that volatility may be the only stable aspect of today’s market.

Diamantaires seem well aware of this as rough and polished trading appears to have improved in November, restoring some much needed pre-Thanksgiving confidence to the trade. The mood is optimistic, but it is knowingly cautious. For unlike the super wealthy, the diamond trade and its middle income bread-and-butter clients are not insulated from the world.

The writer can be contacted at avi@diamonds.net.

This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to
www.rapnet.com or contact your local Rapaport office.

Copyright © 2011 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400. 

Disclaimer: This Rapaport Weekly Market Report is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.

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Tags: Avi Krawitz, Bain & Company, diamonds, Financial markets, McKinsey & Company, Rapaport, wealth, Wealth-X
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Wealth in China
Nov 21, 2011 10:04AM    By Jeffrey Bilgore
Very interesting to see that Upper middle class in China income ranges between 15 - 30K per year. In America that is most certainly not Upper middle class and these incomes are not buying luxury watches or anything else. Even with cost of living differences it is a huge difference.
It seems the most striking fact is the increased income percentage that has occurred to get to this level.
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