Asia Pacific HNWI wealth to grow 8.8 per cent annually despite fall in population
Asia Pacific’s population of high net worth individuals fell 14.2 per cent to 2.4 million in 2008 amid a global economic downturn and market volatility, according to a report from Merrill Lynch Wealth Management and Capgemini.
The combined wealth of the region’s high net worth individuals dropped 22.3 per cent to USD7.4trn.
Ultra-high net worths, or individuals with investable assets of at least USD30m, witnessed steeper wealth erosion with the number of ultra-HNWIs in Asia Pacific falling 29.6 per cent to 14,300 and their total wealth shrinking 35.1 per cent.
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.
According to the report, 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 per cent until 2018, faster than the global average of 7.1 per cent.
“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,” says Antony Hung, head of Asia Pacific wealth management at Merrill Lynch Wealth Management. “The region’s diverse economic landscape presents tremendous growth opportunities for wealth management firms.”
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 per cent of the region’s HNWIs and 65.8 per cent of total wealth, up from 68.8 per cent and 62.4 per cent respectively in the previous year.
The number of HNWIs in Japan fell 9.9 per cent to 1.37 million and their wealth shrank 16.7 per cent to USD3.2trn. 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 per cent to 364,000 and their combined wealth dropped 20.7 per cent to USD1.7trn. Still, China’s HNWI population surpassed that of the UK to become the fourth-largest in the world, the report found. India’s HNWI population also took a hit, falling 31.6 per cent to 84,000.
Hong Kong’s HNWI population had the biggest percentage decline in the world, falling 61.3 per cent to 37,000. Nonetheless, despite last year’s decline, the average net worth of Hong Kong HNWIs remained at USD4.9m, considerably higher than the regional average net worth of Asia Pacific HNWIs which stood at USD3.1m.
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 per cent, up from 25 per cent a year earlier. Taiwan’s HNWIs had the highest cash/deposits allocation at 41 per cent.
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 per cent 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 per cent from 38 per cent, while Hong Kong HNWIs scaled back their exposure to 21 per cent from 33 per cent.
Investments in home-region and domestic markets rose to 67 per cent from 53 per cent, 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,” says Arvind Sundaresan, head of sales for Asia Pacific at Capgemini’s financial services global business unit.
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