There are few more basic human urges than the desire to prove that you have arrived. People do it all the time: newly minted millionaires drive around in Bentleys and put up big gates around their houses. Cities do it as well – as soon as a town gets richer, it usually puts up an opera house or builds a new metro system. And nations do it, perhaps most of all. As they move from relative poverty to affluence to wealth, they find ways of showing off their new-found riches.
In the 1980s, for example, when the Japanese were riding the crest of an economic boom, they started buying lots of trophy assets. In the middle of a property bubble that briefly valued the Imperial Palace in Tokyo at more than the whole of California, Japanese companies and speculators went on a buying spree around the world. They snapped up properties such as the Rockefeller Centre and the Pebble Beach Golf Course for far more than they were really worth. It turned out to be a bad deal for the Japanese – but, of course, a very good deal for the people who sold to them.
Now, the process looks set to be repeated. New economies in Asia are emerging more powerfully than ever. China, most obviously; but also Korea, Taiwan, Singapore and Indonesia. Brazil, India and Russia are all rapidly industrialising and building up vast concentrations of wealth. The oil-rich nations of the Gulf are building up huge sovereign wealth funds. They are all likely to want to announce their arrival on the world stage by snapping up some high-profile assets. So investors should make sure they position themselves to benefit.
There are already plenty of signs that a trophy boom is already underway. The Singapore Stock Exchange has just launched a $7.9bn bid for the Australian exchange. Brands such as Jaguar and Land Rover are now under Indian ownership. Half of the Premier League is owned by Russians, Gulf states, or Asian entrepreneurs. With $26trn of reserves, the Chinese can afford to buy just about anything they want to. So can most of the other emerging nations. Countries that are newly industrialising rack up cash very quickly. But where should investors be looking for evidence of trophy hunting?
Luxuries are perhaps the most obvious place to start. The Chinese and Russians love glitz. They like designer goods, flash hotels, big department stores, and fine wines. Harrods has just been sold to Qatar Holdings: the £1.5bn price tag made it just about the most expensive shop in the world. So what’s next? The French luxury goods group LVMH looks an obvious candidate. Brands such as Fendi, Louis Vuitton and Moet & Chandon would be tempting trophies for any country on the rise.
Then there’s L’Oréal, the world-leading cosmetics manufacturer. Nestlé might own a controlling stake alongside the Bettencourt family, but who is to say they might not sell out if the price was right? In Italy, Bulgari falls into much the same category. So does Luxottica, which owns brands such as Ray-Ban sunglasses. In this country, the clothes brand Burberry is another good candidate.
Next up is land. There is nothing quite like owning a chunk of someone else’s country to mark your arrival on the world stage. The higher profile the building, the higher the price it will command. Canary Wharf is one obvious example. Partly owned by Middle Eastern investors, it is still a quoted company and may well get snapped up for a fancy price during the coming decade. The Eiffel Tower isn’t a quoted company – yet. Neither, unfortunately, is the Brandenburg Gate, or the Leaning Tower of Pisa.
But they would fetch big prices if sold.
Third comes heritage. When Sony was wiping out the European and American electronics industry, it still had to buy Columbia Pictures to get itself into the film and music business. In a similar way, lots of thrusting new conglomerates will need to make acquisitions in Europe and the US to kit themselves out with some instant heritage. There are plenty of likely targets. Take the French drinks giant Pernot Ricard. Its brands include Chivas Regal, Martell brandy, and Jacob’s Creek wine. They all ooze history. Likewise, a British drinks giant such as Diageo. It owns Johnnie Walker, the world’s biggest-selling whisky, among many other brands.
Lastly, there’s technology. It takes a long time for countries to develop cutting-edge skills and know-how. Usually, the only solution is to buy it. How about a Chinese bid for Microsoft or Apple? It’s not as crazy as it might sound. Here, Rolls-Royce has an unequalled position in the manufacture of aircraft engines. Meanwhile, GlaxoSmithKline and AstraZeneca are world-beating drugs companies; the acquisition of either would make an emerging nation feel like a leader in medicine. In Europe, Nokia looks a likely prize – it is, after all, still the world’s biggest manufacturer of mobile phones.
Naturally, there will be plenty of nationalistic posturing. We’ll hear cries about ‘selling the family silver’. But the lesson of the 1980s is that the emerging nations always ludicrously overpay. And they’ll happily do it again – so just make sure that you benefit from the next auction.