Playground of rich investors
From Bentleys to Beemers, gems to champers, Ireland's super-rich are blissfully ignorant of austerity drives, writes Louise McBride
Published 13/03/2011 | 05:00
Ireland's super-rich have certainly had their hands full over the last year. The deepening of our country's banking and economic crises panicked many into pulling billions of euro of savings out of Irish banks.
Investors in Irish government debt -- once considered a safe investment -- were forced to pay record costs to insure against losses in their investment last January. The costs of insuring their government debt soared that month after it emerged that stock markets believed the Irish Government had more of a chance of going bust than the Argentine one.
The recent IMF-EU bailout deal has also weighed heavily on some wealthy investors. Irish bank debt was a popular investment about this time last year. Since the IMF-EU bailout deal was struck last November, there have been calls for the bondholders in Irish banks to take a 'haircut' -- which would essentially mean that they, rather than taxpayers, share the cost of bank losses.
And there are new challenges on the horizon for the super-rich -- inflation is gathering pace and the European Central Bank (ECB) is expected to increase its interest rate for the first time in two years.
Despite all this, there are still Irish billionaires and millionaires around. They must be doing something right to be still standing -- what exactly is it?
FROM TESCO TO
In Ireland, Louis Vuitton handbags are simply remnants of the Celtic Tiger years -- but in China, these luxury handbags are being snapped up like there's no tomorrow. The super-wealthy are well aware of this.
"With the inflation threat, high net worth individuals are buying stocks with pricing power," says Pat McCormack, head of wealth management with Barclays Wealth Ireland. "Big international brands, such as Procter & Gamble and Tesco, are popular. High net worth individuals are favouring the stocks of companies that are exporting luxury goods to China. That includes the likes of BMW and LVMH."
LVMH owns the Louis Vuitton brand -- as well as the brands for Moet & Chandon champagne and Hennessy cognac.
Bernard Arnault, the chairman of LVMH, once said: "Luxury goods are the only area in which it is possible to make luxury margins."
LVMH has seen a growing appetite for its goods in China over the last few years.
"Last year saw a resurgence in global demand that has led to increased sales and, ultimately, higher profitability for the luxury goods sector," said Gearoid Hussey, a director with NCB Wealth Management, in his company's latest newsletter. "Shares in the biggest luxury goods companies have risen sharply in the past twelve months. Companies such as LVMH; Swatch; the Swiss watchmaker, Richemont -- which owns Cartier; and Hermes -- the fashion and leather group, have seen their shares rise more than 50 per cent in 2010. Some of the other luxury name winners in 2010 include German car manufacturers BMW and Volkswagen -- who have seen their share prices rise by 90 per cent and 60 per cent respectively. Rolls Royce recently said that China was its fastest growing market.
Hussey believes 2011 will be another good year for luxury goods. "The luxury goods companies are selling to the two groups of people who have money -- the rich, who are getting richer, and consumers in emerging markets, who are getting richer," explains Hussey.
As stock markets have done well over the last couple of years, many wealthy investors are putting their money into international, British, German and French equities, according to Bobby Hassett, a director with NCB Wealth Management.
There is a lot of interest in US equities -- particularly where the corporate balance sheets are in good shape and there is strong earnings growth, according to Barclays Wealth's McCormack.
"We're also seeing more interest in emerging market equities as economies there are still growing," says McCormack.
Emerging markets, however, could be another bubble about to burst. The IMF warned last week that fast-growing emerging market economies, such as China, were showing signs of overheating.
STERLING & KRONER
With the European financial crisis prompting fears about the break-up of the euro, the euro hit record lows against the US dollar and sterling in late 2010. Many wealthy investors reacted quickly to those developments and moved some of their investments into non-euro currencies. Many now hold between 10 and 15 per cent of their money in a non-euro currency, according to McCormack.
The euro gained ground on the US dollar last week -- on the back of expected interest rate hikes by the ECB.
Despite this, Barclays Wealth believes the economic recovery in the eurozone will be slow -- and that the euro will remain weak as a result. Barclays expects the Swedish kroner to be a strong currency this year.
"The recent euro strength is an opportunity to buy sterling, US dollar, Swedish kroner and even a basket of emerging market currencies," says McCormack.
DIAMONDS & WINE
Diamonds, rare stamps, fine wines and art always attract rich investors -- and these investments usually maintain their value against inflation, according to Rory Gillen, founder of the investment website, www.investrcentre.com.
"Diamonds would play the same role as gold," says Gillen. Some wealth managers are wary of commodity investments, such as oil and gold, however. "We are unsettled by the high correlation of late between commodities and equities," says McCormack. "A lot of commodities have had a big run lately and look expensive -- particularly versus equities."
Gold prices hit all-time highs last week as investors rushed to "safe-haven" investments on the back of concerns that the turmoil in Libya could spread to other Arab nations.
"In Ireland, the impact of the banking and property collapse has been severe on those with capital because of the over reliance on property with borrowings and bank shares," says Gillen. "The result is that many with money have reverted to cash deposits and guaranteed structured products. Of course, guaranteed structured products are a complete waste of time for anyone but the product provider and seller."
NCB's Hassett also said that the Irish super-rich were sticking to safe havens when investing their money. "In Ireland, it's mostly about capital preservation -- and safety first," says Hassett. Higher inflation is, however, tempting some investors out of cash investments, according to McCormack.
"In 2007 and 2008, the smart investors adjusted their investment portfolios so they were underweight (had less of their money) in property and equities and overweight (had more of their money) in government bonds," says McCormack. "What they are starting to do now is readjust their portfolios again. While cash is fine as a safe haven, high-net-worth individuals are realising that cash is not an investment that is going to preserve or grow wealth in the long term -- so they're moving some money into equities, bonds and alternative trading strategies -- such as hedge funds."
Sunday Indo Business