Wealth of Asia-Pacific rich at $9.5trn

The wealth of Asia-Pacific's high-net-worth individuals (HNWIs) rose 12.5 per cent to $9.5 trillion (Dh34.8trn), according to the latest wealth report by Merrill Lynch and Capgemini.

The number of high-networth individuals (HNWIs) in the region grew by 8.7 per cent to 2.8 million and the number of ultra-high-net- worth individuals (ultra-HNWIs) jumped 16.4 percent to 20,400.

The increase in the number of millionaires is mainly owing to economic growth and stock market returns, said the third annual Asia Pacific Wealth Report released yesterday.

Asia-Pacific accounted for 27.8 per cent of the world's HNWI population in 2007 and ultra HNWIs accounted for 26.3 percent of the region's HNWI wealth. The report covered nine key markets in Asia Pacific: Australia, China, Hong Kong, India, Indonesia, Japan, Singapore, South Korea and Taiwan.

For the third straight year, five of the world's 10 fastest-growing HNWI populations were concentrated in Asia Pacific markets. India led the way with 22.7 per cent increase in its HNWI population, followed by China at 20.3 per cent. South Korea, Indonesia and Singapore posted gains of 18.9 per cent, 16.8 per cent and 15.3 per cent, respectively.

"Emerging markets are benefiting from recent reforms to the financial services industry and increases in foreign direct investment from international markets, such as the US, UK and Middle East," said Wayne Li, Senior Manager, Capgemini's Financial Services Strategic Business Unit. "As long as the region remains an engine of wealth creation, local and foreign investors will continue to pursue investment opportunities in the region."

The Asia Pacific region also saw an increase in emerging HNWIs, or individuals with between $750,000 (Dh2.75 million) and $1m in investable assets. The number of emerging HNWIs in Asia Pacific rose 6.9 per cent last year, versus the global rate of 5.2 per cent. China's emerging HNWIs population grew the fastest, at 19.9 per cent.

"The report paints a consistent picture of growth for the Asia-Pacific region," said Antony Hung, Head of Pacific Rim Wealth Management at Merrill Lynch. "Strong domestic demand and a growing entrepreneurial class continue to spur wealth creation in this part of the world, presenting tremendous opportunities for wealth management providers."

Wealth spectrum

Competition for high-net-worth clients has prompted wealth management providers to look more closely at emerging HNWIs and ultra-HNWIs. In 2007, these groups experienced significant growth both in terms of numbers and their combined wealth. In India, emerging HNWI wealth increased by 22.1 per cent to $35bn, and the assets of ultra-HNWIs broke through the $100bn barrier for the first time.

"Both local and foreign providers in the region recognise the potential of emerging-HNWIs and ultra-HNWIs and are looking for ways to improve their priority and private banking models to better serve these segments" said Li. "Providers are also cognizant they must maintain a differentiated value proposition across the segments so as not to dilute their offerings to higher wealth tiers."

Asset allocation

Market uncertainties in the second half of 2007 prompted Asia-Pacific HNWIs to shift their assets to safer, less volatile asset classes. Last year, the region's wealthy allocated 46 per cent of their holdings to cash/deposits and fixed-income securities, an increase of seven percentage points from 2006.

Asia-Pacific HNWIs cut their exposure to real estate but the asset class remained a significant source of wealth for high-net-worth investors in the region. They held 20 per cent of assets in real estate last year, compared with the 14 per cent global average. Within the region, asset allocations differed from market to market. Australian HNWIs, for example, held 38 per cent of their assets in equities, the highest in the region. Investors in India, Hong Kong and Singapore had high equity allocations.

South Korea's HNWIs continued to allocate the highest percentage of their holdings to real estate, putting 40 percent of their investments in the asset class.



DRIVERS OF WEALTH

Economic growth and stock market returns were the key drivers of wealth accumulation in the Asia Pacific region in 2007.

Two-thirds of the markets covered in the report expanded their economies at a faster rate than the global average, with China and India reporting 11.4 per cent and 7.9 per cent real GDP growth respectively. Despite deteriorating global economic conditions in the second half of 2007, robust domestic demand buoyed growth in most Asia-Pacific economies.

As investors shifted funds away from troubled markets in favour of strong emerging markets, Asia-Pacific markets welcomed increased investment activity in the second half. Savings rates, as a percentage of GDP, were higher in Asia Pacific than the developed markets.



ASIA-PACIFIC TO REPLACE EUROPE

By 2012, Asia-Pacific is expected to replace Europe as the second-largest regional repository of HNWI wealth.

The Asia-Pacific region's HNWI wealth is projected to reach $13.9 trillion (Dh51trn) by 2012, growing at an annual pace of 7.9 per cent and slightly ahead of the 7.7 per cent international rate.

While growth prospects in the near term may be compromised by the global slowdown, the long-term potential of the Asia-Pacific HNWI marketplace remains strong.

In 2009, Asia-Pacific HNWIs are likely to turn to fixed-income securities that offer less volatile returns.

They are also expected to increase their allocations to alternative investments, mainly in the form of hedge funds or other investments, which are more suited to uncertain market conditions.

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