Investment opportunities in 'vanity capital'

THE so-called vanity capital market is a large and growing one with good investment opportunities, according to Bank of America Merrill Lynch.

Vanity capital refers to the accumulation of items seen as enhancing a person's appearance and prestige, whether wearing fancy jewellery or flying a private jet. The term was coined earlier this year by Mr Ajay Kapur, an equity strategist for Asia-Pacific at Bank of America Merrill Lynch.

Vanity capital includes both luxury and mid-market items, which can be sub-divided further into wearables and what are called augmented items.

Wearables include jewellery and watches, beauty and cosmetics while augmented items include private jets, luxury hotels, private clubs and schools and exclusive credit cards.

While vanity capital need not be expensive, neither can it be cheap: lower-priced items are considered to be merely utilitarian and not an investment opportunity, according to a Bank of America Merrill Lynch report on the sector released in April.

It estimates that spending on vanity capital globally is approximately US$4.5 trillion (S$6 trillion), larger than Germany's US$3.7 trillion economy.

Bank of America Merrill Lynch attributes the growth of vanity capital to 10 factors, including the rise in female spending power due to higher labour force participation and more men spending on vanity capital to attract potential partners, especially in countries such as India and China, which have a large male-female imbalance.

Consensus estimates suggest that the shares of firms in the vanity capital area will rise by 37 per cent over the next two years, far ahead of shares in the more mainstream consumer segment.

The report calls vanity capital "one of the most durable growth stories in emerging and developed markets", and recommends investors to take note of this "global bull market in narcissism".

It added that luxury vanity capital growth is "one of the few areas in global consumption that is seeing above average growth".

Western Europe has the largest vanity capital market at US$748 billion, but Mr Kapur predicts that China has the most potential because of its large population and increase in the number of people with the propensity to spend big.

But the report also warns that there are risks, especially at the luxury end. Among the reasons cited were the possibility of higher taxes being imposed on the wealthy in developed countries to reduce income inequality, asset markets falling and diminishing the wealth effect, and the world going into recession.

A version of this article appeared in the print edition of The Straits Times on June 23, 2015, with the headline 'Investment opportunities in 'vanity capital''. Subscribe