Asia Pacific’s population of high net worth individuals (HNWIs ) fell 14.2% to 2.4 million in 2008 amid a global economic downturn and market volatility, according to the Asia-Pacific Wealth Report released today by Merrill Lynch Global Wealth Management and Capgemini. The combined wealth of the region’s HNWIs dropped 22.3% to US$7.4 trillion.
Ultra-HNWIs, or individuals with investable assets of at least US$30 million, witnessed steeper wealth erosion than the HNWI population in the region. The number of ultra-HNWIs in Asia Pacific fell 29.6% to 14,300 and their total wealth shrank 35.1%.
China and India to Lead Growth in Asia Pacific HNWI Wealth
Growth in Asia Pacific’s HNWI population and wealth is set to pick up as market conditions improve. The region’s economies are showing signs of recovery and are forecast to grow at a faster pace than the global economy by 2010.
China and India are likely to lead HNWI growth in Asia Pacific, underpinned by robust domestic consumption and a growing number of affluent individuals. The combined wealth of Asia Pacific’s HNWIs is estimated to grow at an annual rate of 8.8% until 2018, faster than the global average of 7.1%.
“We expect Asia Pacific to be a significant driver of global HNWI wealth, with China and India at the forefront of growth and Japan remaining an important high net worth market,” said Antony Hung, Head of Asia Pacific Wealth Management at Merrill Lynch Global Wealth Management. “The region’s diverse economic landscape presents tremendous growth opportunities for wealth management firms.”
Added Bertrand Lavayssière, Managing Director Global Financial Services, Capgemini, “While Asia Pacific saw a decline in HNWI numbers and wealth across the board, diverse economies and a shifting HNWI activity are signs that the region is poised to surpass North America and Europe to have the highest levels of wealth in the world.”
Concentration of Wealth in Japan and China
Japan and China continue to host a large percentage of the Asia Pacific HNWI population and its wealth. Last year, the two markets were home to 71.9% of the region’s HNWIs and 65.8% of total wealth, up from 68.8% and 62.4% respectively in the previous year.
The number of HNWIs in Japan fell 9.9% to 1.37 million and their wealth shrank 16.7% to US$3.2 trillion. The decline was milder than in other markets as Japan already witnessed slower economic growth in 2007, and the country’s HNWIs are typically more conservative in their asset allocations which limited their losses last year.
Despite steep market capitalization losses, China avoided the larger losses in HNWI numbers seen in other markets due to the closed nature of its markets combined with robust macroeconomic growth. The number of HNWIs in China fell 11.8% to 364,000 and their combined wealth dropped 20.7% to US$1.7 trillion. Still, China’s HNWI population surpassed that of the U.K. to become the fourth-largest in the world. India’s HNWI population also took a hit, falling 31.6% to 84,000.
Hong Kong’s HNWI population had the biggest percentage decline in the world, falling 61.3% to 37,000. Nonetheless, despite last year’s decline, the average net worth of Hong Kong HNWIs remained at US$4.9 million, considerably higher than the regional average net worth of Asia Pacific HNWIs which stood at US$3.1 million.
“Unprecedented market conditions last year wiped out two years of gains in Hong Kong’s HNWI numbers,” said Francis Liu, Market Managing Director for Greater China at Merrill Lynch Global Wealth Management. “Looking ahead, wealth accumulation is set to resume in Hong Kong as the economy recovers and capital continues to flow into the local market.”
HNWIs Retrenched to Cash and Domestic Investments
Asia Pacific HNWIs increased their allocations to safer and simpler investments last year in a move to preserve wealth. The proportion of cash-based holdings rose to 29%, up from 25% a year earlier. Taiwan’s HNWIs had the highest cash/deposits allocation at 41%.
Exposure to equities fell as a plunge in regional markets prompted a broad sell-off. By the end of 2008, Asia Pacific HNWIs had 23% of their wealth in equities, down three percentage points from the previous year. In Australia, HNWIs cut back their allocations to the asset class to 25% from 38%, while Hong Kong HNWIs scaled back their exposure to 21% from 33%.
Investments in home-region and domestic markets rose to 67% from 53%, as global market uncertainty deterred Asia Pacific HNWIs from investing in other regions.
“Capital preservation will remain a priority for the region’s HNWIs in the short term. As markets recover and risk appetite returns, we expect Asia Pacific HNWIs to adopt a more balanced investment approach and increase their allocations to other regions gradually,” said Arvind Sundaresan, Head of Sales for Asia Pacific at Capgemini’s Financial Services Global Business Unit.
About Merrill Lynch Global Wealth Management
Merrill Lynch Global Wealth Management (MLGWM) is a leading provider of comprehensive wealth management and investment services for individuals and businesses globally. With more than 15,000 financial advisors and approximately $1.2 trillion in client assets as of July 17, 2009, it is among the largest businesses of its kind in the world. More than two-thirds of MLGWM relationships are with clients who have a net worth of $1 million or more. Within MLGWM, the Private Banking & Investment Group provides tailored solutions to ultra high net worth clients, offering both the intimacy of a boutique and the resources of a premier global financial services company. These clients are served by more than 160 Private Wealth Advisor teams, along with experts in areas such as investment management, concentrated stock management and intergenerational wealth transfer strategies. Merrill Lynch Global Wealth Management is part of Bank of America Corporation.
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