Coronavirus: Is now good time to invest in Rolex and luxury watches?
The 31st of December 2019 marked two occasions, the end of a decade and the first reported cases of a newly discovered, human-based, virus which has now been identified as Covid-19. The coronavirus has had a large impact on everything from travel to motor cars to wristwatches among fears of how the virus is spreading. Recently, the WHO (World Health Organisation) said that the outbreak has "pandemic potential", although it isn't at that level just yet.
Virus figures for the UK show that the number of people infected with the coronavirus is in double figures. Still, analysts say that the UK's approach of isolating people appears to be working, as those in the country who do have it have become infected when overseas or when meeting someone who has returned from a hotspot. With the number of confirmed infections rising, along with the death toll, this is having a dramatic effect on the stock markets across the globe.
According to the Financial Times, week commencing the 24th of February brought one of the most significant declines in stock markets since the Global Financial Crisis of 2008. The FTSE 100 has dropped by 3%, while the European market Stoxx Europe dropped by3.3%. In Asia, MSCI's Pacific Index fell by 2.6%. In Japan, the Nikkei 250 closed after dropping by 3.6%. The international benchmark for crude oil received a similar hit to the stock markets with prices per barrel falling by 2.4%. Bitcoin prices have also fallen by over 9%. Meanwhile, the price of gold has since slowly depreciated after shooting upwards on Monday and is now down 3.4%.
In the world of trade shows, the Mobile World Congress in Barcelona and the Geneva Motor Show have been cancelled. For watch fans, both Baselworld and Watches & Wonders (formerly SIHH) have been cancelled for this year after the Swiss Government imposed a ban on public and private gatherings of over 1000 people in attempts to prevent the illness spreading further. The shows typically see tens of thousands of representatives, journalists and tourists come through their doors to get hands-on with the newest watches. Both the MCH Group (which runs Baselworld) and the FHH (Fondation de la Haute Horlogerie, responsible for Watches & Wonders) have said that it is in their best interest to safeguard the health of visitors and that they had no choice but to cancel this year. The MCH Group has announced that Baselworld will return in January 2021, although no information is yet known about Watches & Wonders.
Luxury groups such as Swatch, Richemont and LVMH are particularly at risk thanks to a drop in Chinese sales. After Hong Kong's disastrous performance last year, thanks in part to Chinese imposed Visa restrictions, companies in Switzerland have been struggling to move the same number of watches as they did in previous years. The figures from the Federation of the Swiss Watch Industry FH (FHS) for 2019 showed that the value increase on Swiss watch exports was due to the increasing amount of watches made of precious metals being exported. The number of watches decreased, but their price increased and gave the Swiss watch industry a 2.4% increase in value over 2018 (Source: FHS).
So, what could this all mean for our precious watches?
Well, many see them as an investment, particularly Patek Philippe and Rolex. Many of their watches have a long waiting list which is countered by the fact that their pieces can sell for over double their retail price on the secondary market. It's entirely possible that investors may seek to hedge their funds into something that's quite stable and, for now, relatively unaffected by the outbreak of the coronavirus.
With the drop in the value of gold bullion, are solid gold Rolex and Patek Philippe watches likely to become cheaper?
For now, that's purely some wishful thinking. Rolex generally increases its prices every other year or so to protect itself from rising costs such as rent and staff wages. Rolex also has its own metal foundry where it refines metals to be used in its watches. That's why it makes a big deal out of them and gives its products interesting names such as Oystersteel (previously 904L steel) and Rolesor (two-tone, in use since 1933). This means that Rolex is in a position where it is less likely to be affected by the price of gold than the rest of the Swiss watch industry (which relies on external companies) with the exception of Chopard, which also has its own foundry for its jewellery and watchmaking.
Like Rolex, Patek Philippe has a reputation to uphold, one of typical Swiss confidence. It is therefore unlikely to change its prices any time soon. Although Patek Philippe doesn't have a special type of 'Nautilus Gold' or something along those lines, it does still command a premium. You can expect to pay at least £55,000 for a stainless steel Nautilus 5711 watch, which is nearly three times its retail value. If you can afford to wait for a few years (some dealers expect a wait of over ten years) then the Nautilus could be considered a 'good investment', the main downside being the duration of the wait before you receive the watch. Lots of things could happen between you placing the order and you collecting your sparkly new piece.
If anything is going to be affected significantly, it won't be the retail market, but the secondary market where the coronavirus is likely to affect first. While most countries have decided that closing their borders entirely will have little to no effect on the contagion, it is possible in the future that overseas trading could stop entirely. It's almost that goods to and from China will take a lot longer to pass through customs before they can be shipped off. I like to think of the episode of The Simpsons where Bart gets bitten by a mosquito hidden inside a toy and then becomes infected. A lot of watches are shipped into and out of Asia, specifically China, Japan and Hong Kong. With the lattermost already being hit significantly by riots and now the possibility of quarantine, it could be an excellent time to think about buying your next luxury watch locally from experts such as Watches of Wales.