Asia-Pacific’s population of high net worth individuals (HNWIs1 ) rose 25.8% to 3.0 million in 2009, catching up with Europe’s HWNI population for the first time, according to the 2010 Asia-Pacific Wealth Report released by Merrill Lynch Global Wealth Management and Capgemini. Asia-Pacific HWNI wealth also surged 30.9% to US$9.7 trillion in 2009, erasing losses seen in 2008 and surpassing that of Europe’s HWNI wealth in 2009. The number of ultra-HNWIs2 in Asia-Pacific rose 36.7% to 19,600, while ultra-HNWI wealth jumped 42.6% in 2009.
HNWIs are defined as those having investable assets of US$1 million or more, excluding primary residence, collectibles, consumables, and consumer durables.
“Asia-Pacific’s HNWI population matching Europe’s for the first time highlights the region’s growth potential, with China and India at the forefront and Japan remaining an important market,” says Wilson So, interim Head of Asia-Pacific Wealth Management at Merrill Lynch Global Wealth Management. “The region holds much promise and is a strategic focus for every wealth management firm with global aspirations.”
The top three countries—Japan, China and Australia— accounted for 76.1% of the Asia-Pacific HNWI population and 70.0% of its HNWI wealth in 2009. Japan and China together were home to 70.4% of HNWIs in the region and 64.6% of regional HNWI wealth, up from 51.8% and 62.8% respectively a year before.
Japan is by far the single largest HNWI market in Asia-Pacific. Alone it accounted for 54.6% of the Asia-Pacific HNWI population and 40.3% of its wealth at the end of 2009. At the same time, growth in Japan was less than in other markets due to the slowdown in Japan’s macroeconomic growth and the relatively weak performance of its stock markets.
China remained the second-largest HNWI base in the region, and fourth-largest in the world, with 477,000 HNWIs, up 31.0% from the previous year.
“Asia-Pacific proved to be the most resilient region in the economic crisis,” adds Bertrand Lavayssière, Managing Director Global Financial Services, Capgemini. “The region’s aggregate growth is likely to outpace the world economy in 2010 and 2011, as domestic demand and intra-regional trade help to offset any ongoing weakness in exports to advanced economies.”
Growth Abounds for HNWIs in Asia-Pacific
Hong Kong’s HNWI population had the highest percentage gain in the world, up 104.4% to 76,000. This growth, however, did not fully recoup the large declines Hong Kong saw in 2008. Despite significant gains in key market drivers of wealth, particularly equities and real estate, the number of HNWIs in Hong Kong at the end of 2009 was still only 79% of the number at the end of 2007.
India also saw strong growth in 2009 with its HNWI population and wealth increasing 50.9% and 53.8% respectively. Helping drive this recovery in India were resurgent stock-markets, as well as strength in the underlying economy, allowing the country to fully recover its HNWI wealth and population to pre-crisis levels.
Faster economic growth, coupled with improving business conditions, should fuel expansion in the HNWI segment as business ownership and income account for 73% of all HNWI wealth in Asia-Pacific, excluding Japan, says the report, adding that China and India will lead the way in the region with economic expansion and HNWI growth likely to keep outpacing more developed economies.
Asia-Pacific HNWIs Increase Allocations to Equities and Real Estate
In 2009, Asia-Pacific market drivers of wealth, particularly equities and real estate, regained significant ground after hefty losses in 2008. Asia-Pacific HNWI investors ended 2009 with 27% of their assets held in equities, up from 23% a year earlier, as they headed back into the equity markets and equity-asset values rose, especially in emerging markets.
The share of Asia-Pacific HNWI assets dedicated to real estate rivaled that of equities – rising to 26% from 22%, as real estate prices recovered across major markets in the region.
This brought allocations back to pre-crisis levels and reversed the crisis-driven flight to cash-based instruments.
The proportion of Asia-Pacific HNWI assets allocated to cash-based instruments dropped to 22% in 2009 from 29% in 2008 and fixed-income investments accounted for only 20% of assets, unchanged from 2008. In addition, Asia-Pacific HNWIs remained primarily invested in their home regions in 2009, though the proportion invested outside the region rose to 36% from 33% a year earlier.
Looking toward the future, Asia-Pacific HNWIs’ allocations to equities and fixed-income instruments are expected to increase by 2011 and relative holdings of cash-based and real-estate holdings are expected to decline as HNWIs seek to rebalance their portfolios. In addition, home-region allocations are expected to decline as Asia-Pacific HNWIs pursue returns and opportunities elsewhere, especially in the emerging markets of Latin America and Africa.
Still, real estate will remain a key financial asset class for HNWIs in Asia-Pacific, given that other investment options are more limited than in developed markets. Real estate also provides Asia-Pacific HNWIs with an opportunity to invest in familiar markets, while still diversifying their holdings.