China Rare Stamps Investments - Mao’s Leap of Faith:

As part of our contuing series on luxury investments and “door openers” with clients, Keith Heddle of Stanley Gibbons gives us investment insight into the Chinese rare stamp market:

The Great Leap Forward took place in 1958. This was Chairman Mao’s attempt to modernise China’s economy so that in 30 years, it would have an economy to rival that of America.

Mao had toured China and concluded that the Chinese people were capable of anything and looking at the strength of the Chinese economy today, he wasn’t far wrong.

The story of the Chinese rare stamp market is another ‘great leap forward’ – and yet there’s a delicious irony here.

Mao banned stamp collecting as being bourgeois – so the great leap in Chinese stamp collecting and also for rare stamps has come in recent years.

And for now, that stamp boom just keeps on going. Chinese stamps represent the biggest bull market in philately right now and the perfect momentum investment – the ‘bull in the China shop’ as Mike Hall, my CEO commented.

As you know, in investing the easiest way to make money is to ride the waves of growth. Pick your wave right and you will make money. Your risk – make sure you get out before the wave crashes.

We recently published the 9th edition of our China stamp catalogue (the only China catalogue published in English on the market) and the prices are already lagging behind auction realisations!
To get an idea of the strength of the market, here’s a historical snapshot:

SG No.	Description	Cat Nov 2006	Cat April 2012	5½ year growth %	Average annual growth %
8d	1878-83 Thick paper 3c imperf between (vert pair) used	£37,000	£110,000	287%	52%
2403a	1968 “The Whole Country Is Red” 8f. multicoloured	£12,000	£100,000	733%	133%
85	1897 Empress Dowager First printing surch. with small figures 30c. on 24ca. pale rose-red unused	£12,000	£28,000	133%	24%
38a	1897 Small figures 1c. On 1ca. inverted surcharge unused	£8,000	£38,000	375%	68%
MS2044a	1962 Mei Lan-fang 3y. miniature sheet unmounted mint	£2,250	£22,000	878%	160%
9	1865 Shanghai 2ca laid paper Cadareen unused	£6,500	£12,000	85%	15%
39e	1897 Small figures 2c.on 2ca. surcharge double unused	£6,500	£25,000	285%	52%
3	1878-83 Thin paper 5ca orange block of 4 unused	£3,000	£7,250	142%	26%
308	1918 $20 black and yellow unused	£1,800	£7,500	317%	58%
88	1897 Red Revenue 1c. on 3c. deep red block of 4 unused	£1,500	£5,250	250%	45%
MS2199a	1964 Peonies 2y miniature sheet unused	£950	£5,000	426%	78%
104a	1897 ‘Imperial Chinese Post’ 50c. error blue-green unmounted mint	£700	£5,000	614%	112%
EC182	1943 Huainan $1 on 30c. unused	£1,700	£3,000	76%	14%
33	1894 Dowager 2nd printing 24ca deep rose-red unused	£1,100	£5,000	355%	64%
1/3	1878-1883 Thin paper set of 3 unused	£925	£3,450	273%	50%
NC70/76	1943 Values in cents set of 7 to 500c unused	£1,000	£3,145	215%	39%
MS2900	1979 Study of Science from Childhood, $2 souvenir sheet unused	£700	£2,500	257%	47%
16/24	1894 Dowager 1st printing set of 9 unused	£475	£2,610	449%	82%
124b	1900-06 No watermark 2c. deep red block of 6 imperforate unused	£750	£1,500	100%	18%
2968	1980 Year of the Monkey 8f. vermillion, black & gold unused	£275	£1,600	482%	88%
73	1948-49 Taiwan $100 on $20 scarlet 7th issue unused	£700	£1,100	57%	10%
		£99,825	£378,905	280%	51%

All of these stamps are either currently available to buy from Stanley Gibbons or were recently sold by us.

The prices quoted come from third party auction prices, mainly conducted in Mainland China and Hong Kong.

The performance tracks the change in prices between November 2006 and April 2012 – 5½ years. If you had invested £100,000 in these stamps in 2006, you would expect to have a portfolio worth around £380,000 today. That’s average annual returns of 51%.

Such stellar performance in a time when most markets are sluggish at best and in the doldrums at worst, shows just how useful rare stamps can be as a means of wealth preservation as part of a truly diversified portfolio.

The key is that rare stamps are an asset class not correlated with traditional asset classes.
This is a market supported by 20 million+ collectors, many of whom are enjoying considerable, newly-earned wealth. Compare that against a total available supply in the thousands and you can see why prices must rise across the board.

But when will the wave break?

The strength of the historic performance is there for all to see. So all we need to consider is, “will this continue for the next 5 years”?

I think the term “bubble” is widely misused by financial commentators when referring to anything that represents a high growth market. There is validity in the concept though, that things can’t go up at such high rates forever…

Ultimately, prices rise in accordance with demand against the inherent supply restrictions, which exist in the stamp world.

It stands to reason that the more expensive things get, the more collectors become priced out of the market. There will come a time when only the very wealthy have the funds available to participate in the market. The fluctuating fortunes of the fine wine market in China demonstrate this clearly.
But, it is all a numbers game…

In China, there are over 20 million collectors, far more than the print runs of the stamp issues. This is in a country where wealth is rising. The Chinese elite understand the importance of “tangible assets” for prudent wealth management and protection.

And it’s not just the Chinese that are buying Chinese stamps…

“I would say presently that half of my buyers are from Mainland China and half are from outside China,” said Louis Mangin, owner of the auction house Zurich Asia.

“Many Westerners also buy Chinese stamps. It is seen as a diversification and investment into China.”

But rare stamps still trade at affordable prices and we have been careful to buy wisely in this, the most liquid stamp market in the world.

The wave may crest and break at some point in the future – but right now, it is a simple high growth market supported by huge and rising demand against severe supply restrictions.

If we believe prices are becoming unrealistic in the future or if we witness a decline in the strength of auctions, we will alert you. When this happens, it will be time to get out.

One final point.

We approached some of the biggest investors in this market. They have collections of Chinese stamps worth £millions.

Not one of them entertained the idea of selling to us. Their view was that there was nowhere better to put their cash right now. If the key players are still holding (and still buying) then we are nowhere near the crest of the wave.

Accessing the market

Many Chinese collectors don’t yet discriminate against the quality of the stamps they are buying, but, as always, we do. We believe in only buying stamps in superior condition to the norm. We are able to buy quality examples in this market at the same price poor quality examples trade for.
We expect our investors will benefit from a “quality re-rating” when the Chinese ultimately begin to appreciate the premium rarity value of quality examples.

That is on top of the underlying growth in this asset class. The recent Merrill Lynch Wealth Report states that there are around half a million Chinese millionaires, (31% more than in 2008).
According to Barclays Capital, the Chinese account for 12% of the world’s luxury goods market. The Chinese want to show off their new wealth to the world. The stamp market is just one part of this revolution.

For all your stamp collecting needs - Boscastle Supplies has stamp albums, pages, tongs, hinges, mounts and stockbooks - and we ship worldwide - just place your order online today at www.boscastlesupplies.com

Source: http://www.ifamagazine.com/news/maos-leap-of-faith/11377/