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Citigroup Global Markets says it is time to binge on bling. That is, load up again on plutonomy stocks. For the uninitiated, those are the stocks that stand to benefit from spending by the uber-rich.

In a report called "The Plutonomy Symposium - Rising Tides Lifting Yachts," Ajay Kapur, Citigroup's global strategist, says the balance sheets of the rich are "in great shape, and will get much better," which is why he recommends going out and buying stocks of companies that cater to that very select market.

Spending by the uber-rich overwhelms that of the average consumer and helps explain why the U.S. economy has continued to do well and the U.S. dollar hasn't collapsed even in the face of the U.S.'s current account deficit, a negative savings rate in the U.S., global imbalances and high energy prices, he says. The U.S. is one of the plutonomy countries - countries whose economies are powered by a relatively small number of rich people. Canada and Britain also fall into that category.

High energy costs just don't matter that much to the top 20 per cent of Americans. And Mr. Kapur says the negative savings rate reflects the uber-rich's tendency to spend, not save. They don't need to. After all, their net worth as a fraction of their income has soared 50 per cent over the last 15 years, buoyed by a rising stock market and executive compensation and so "dis-saving," as he dubbed it, has very limited impact on their net worth.

While he urges investors to buy so-called plutonomy stocks - plutonomy is a term that Citigroup made up almost a year ago - Mr. Kapur acknowledges that stocks of luxury goods and services companies aren't, as a group, cheap, when measured on a price-to-book-value basis. Rather, what is important in terms of stock performance is the pricing power of luxury goods purveyors relative to inflation. Since 1976, the prices of luxury goods items have climbed at twice the rate of the consumer price index.

For their part, the luxury goods suppliers face the challenge of maintaining the mystique of prestige while at the same time trying to increase revenue and hit the mass-affluent market, he says. Pure plays on the plutonomy market are few and far between.

So what stocks show up on the plutonomy list? They range all the way from Polo Ralph Lauren Corp., Sotheby's and Tiffany and Co. to Bulgari SpA, Shangri-La Asia Ltd. and Four Seasons Hotels Inc.



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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 7:00pm EDT.

SymbolName% changeLast
C-N
Citigroup Inc
+0.78%63.24
RL-N
Ralph Lauren Corp
+0.68%187.76

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