Covid-19 and its impact on luxury investments

Hermès handbags once again topped the Knight Frank Luxury Investment Index (KFLII) with prices rising by 17%, according to our 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.

Art

The art market, however, did not fare quite so well with the auction-tracking AMR All-Art Index dropping 11% in 2020. But with so many factors impacting the market, there was no single reason for the fall in average values, says AMR’s Sebastian Duthy.

“For obvious reasons one of the biggest changes 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% and 46% on 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.”

But, points out Duthy, 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.”

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, he adds.

“Although 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’.

“Tokyo-born Ayako Rokkaku, who paints candy-coloured figures and rainbow-like smears, and the young American neo-surrealist painter Emily Mae Smith, had sales that tripled or quadrupled their high estimates. Three works by Matthew Wong, who was barely known before his premature death in 2019, broke through the million-dollar mark.

“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.”

Coloured diamonds

The coloured diamond market was also somewhat stymied by the pandemic. “The logistical lockdown simply made it impossible to conclude transactions in a timely manner,” says Miri Chen of the Fancy Color Research Foundation.

“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 seems that HNWIs can’t wait to compensate themselves for 2020, celebrate and buy the jewellery that they could not purchase during Covid,” reckons Chen.

Fine wine

Scoring second place in KFLII, wine markets experienced strong growth in 2020 following a year of consolidation, says Miles Davis of Wine Owners, which pulls together the Knight Frank Fine Wine Icons Index.

“More than ever, this year has been about timing in the capital markets and, if you got that wrong, the chances are you got it expensively wrong. Not so for wine.

"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.”

Our index of viticultural icons, up 13%, outperformed broader market stalwarts such as Bordeaux first growths (+5.8%) in 2020, but couldn’t keep up with the still rampaging older vintages of super-Tuscans that saw annual growth of 18%. Back vintages of Champagne (+14%) were also notably strong. Burgundy was up 11.5%.

While Covid-19 has disrupted luxury markets in the short term, climate change is the bigger influence for the wine trade, says Davis. “Global warming is affecting classic wine regions, Burgundy markedly so given the sensitivity of Pinot Noir to excessive heat. One merchant talked of 2019 being a benchmark vintage for the ‘New Burgundy’ – in a warmer, richer mould.

"Perhaps now is the time to load up on the more affordable 2014 and 2016 classic vintages, the likes of which we may see only rarely in the future.”

Rare whisky

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

“Against many other investments that’s not such a disaster, but compared with 2018’s circa 40% increase the volatility of ultra-rare top-end whisky as an investment is evident,” points out director Andy Simpson.

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

“Most of the 100 single malts within the KFWI are ultra-rare luxury bottles and this part of the market saw more stress in 2020. Bottles selling at auction in the UK for more than £5,000 have generally seen less demand and static prices compared with other segments of the market,” explains Simpson.

A dip in values for market leader The Macallan, which accounts for 15% of all bottles sold on the UK’s secondary market, also contributed, he adds.

“There are 15 bottles of The Macallan in the KFWI to represent their market share and their prices fell by 12% on average throughout 2020. The remaining 85 non-Macallan bottles increased by almost 5%.”

The performance of the KFWI offers an interesting insight into the rare whisky market, reckons Simpson. “Harder economic times show the Index underperforming the broader asset class.

"But in 2018 when the global economy was buoyant, the Index outperformed. These ultra-high-end bottles would appear to be a useful exaggeration of the holistic market. With that in mind, maybe now is a good time to buy.”

Classic cars

After a sluggish 2019, where the value of the HAGI Top Index – which we used to track the value of classic cars – fell by 7%, 2020 saw cars race back up to third place in KFLII with growth of 6%.

Ferraris revved up particularly strongly, with the HAGI F Index rising 14%. 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.

“The market went quiet during the first lockdown with some forced selling evident early on, but also some bargain hunting,” says HAGI’s Dietrich Hatlapa.

“This was followed by individuals and dealers being very active throughout the summer, with the auction market getting into gear online to compensate for the lack of live sales,” he adds.

“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.”

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, predicts Hatlapa. “High quality cars should achieve better prices again.”