At the World Economic Forum on East Asia in Vietnam earlier this month, I was struck by the air of self-confidence among the hosts and participants, which included government and business leaders from the ten ASEAN countries as well as China, India, Japan and Korea. “Everyone is hoping to learn from Asian dynamism,” crowed China’s Wan Zhizhen, who is vice-chairman of the National Committee of the Chinese People’s Political Consultative Conference.
The release this week of the 2010 World Wealth Report
will do nothing to dent that confidence. The annual survey by Capgemini and Merrill Lynch of the global population of high net worth individuals (HNWIs, defined as those with investable assets of at least US$1 million) found that, for the first time ever, Asia Pacific has caught up with Europe in terms of millionaire numbers. Collectively, Asia’s rich have US$9.7 trillion in liquid assets – slightly higher than Europe’s US$9.5 trillion.
All these have implications on the way companies in Asia – and their CFOs – operate today and their strategic planning going forward. At the East Asia Forum, government leaders spoke of the importance of free trade, deregulation, intra-regional integration, environmentally sustainable growth and socially inclusive development. In the World Wealth Report, private consumption among Asia’s rich was found to have risen 5% to US$3.8 trillion even as direct real estate investment surged 56% to US$25 billion in the second half of 2009.
Return of the Millionaire
The rise in HNWI numbers in Asia is remarkable given the fall in their ranks in 2008. That year, the survey counted 2.4 million high net worth individuals across the region, down 14% from 2007. Their overall wealth decreased 22% to US$7.4 trillion.
The World Wealth Report found that millionaire numbers have now more than made up for the decline in 2008 – Asia Pacific had 3 million millionaires in 2009, the same as in Europe. Asian wealth surged 31% to US$9.7 trillion, the second-largest nest egg of millionaire riches after North America, which has US$10.7 trillion, up 18% from 2008.
The Asia Pacific is “home to eight of the world’s ten fastest-growing HNWI populations,” notes the report. “Hong Kong and India lead the pack, after experiencing mammoth declines in their HNWI bases in 2008.”
China retains its position as home of the world’s fourth-largest number of HNWIs, with 477,000 of them, up 31% from 2008. “China and India will continue to lead the way, with economic expansion and growth likely to keep outpacing more developed economies,” says the report. “The region’s HNWI growth is likely to be the fastest in the world as a result.”
Investment and Consumption
Gaining insights into this tiny but lucrative and growing segment of Asia’s consumer market is important for companies in Asia, particularly those in financial services, real estate, hotels, travel and luxury goods.
High net worth clients are not just investing on intellectual information and news, says the report, “but are being driven emotions when making investment decisions post-crisis.” They remain wary. “Many wealth management executives are especially surprised at the degree to which younger investors (those under 50) around the globe remain cautious despite rebounding markets. While these investors were encouraged to be aggressive in the markets in their 30s, some 40-50-year-old investors have experienced a ‘lost decade’ in terms of gains, and are questioning whether they still have the ‘stomach’ to ride out possible market swings again.”
The survey found that high net worth investors are now much more engaged in their financial affairs. “They increasingly expect ‘specialized’ or ‘independent’ investment advice, and are re-validating advice from their Advisor/Firms through other sources, including peers, the Internet, and other research alternatives,” Capgemini and Merrill Lynch report. They also demand greater transparency and simplicity around product risks, fee structures, portfolio reporting and performance.
What do the rich buy? In Asia, high net worth individuals funnel a large part of their investable funds into property, specifically residential property, which accounts for 60% of all real estate investments. “The price of luxury residences in Asia-Pacific grew by 17.1% in 2009, with prices in cities like Hong Kong, Shanghai and Beijing surging by more than 40%, reaching record global levels,” notes the report. The region, particularly China, is also partial to luxury cars.
Globally, “passion investments” staged a strong rebound in the second half of 2009, although outright demand remains weaker than before the crisis in categories such as luxury collectibles (high-end automobiles, boats, jets), art and jewellery. “Notably, the Fine Art markets thrived in much of Asia-Pacific even during the general weakness of 2009,” says the report. Auction revenues in China jumped 25% to US$830 million last year.
In terms of lifestyle spending, health/wellness was the top category in 2009 – the rich spent money on high-end spa visits, fitness-equipment installations and preventative medical procedures. The study also found increased spending on luxury/experiential travel.
The Wealth Report findings are entirely consistent with assertions at the World Economic Forum in Vietnam about Asia’s wider economy: that the region is the first to recover from the global economic recession. Citing an array of statistics, including GDP, trade and employment numbers, the Asian movers and shakers looked back with satisfaction at what the region and their individual countries have accomplished, and looked forward with confidence at what their governments plan to do.
One key theme with special resonance to businesses is the shift towards intra-regional trade and the leaders’ avowed goal of creating the ASEAN Economic Community by 2015. The Southeast Asian bloc has been intensifying economic integration among themselves and with external dialogue partners. Free trade areas between ASEAN and separately with China, Australia, New Zealand, India and South Korea came into effect on January 1 this year.
A closely integrated ASEAN would create a market of 580 million people with a GDP of more than US$1 trillion in which there are not trade barriers that impede the free flow of goods, services, capital, information and talent. This economic community, it turn, can serve as a catalyst for an East Asia free trade zone with Australia, China, India, Japan, Korea and New Zealand – an FTZ that would be the world’s largest with 2 billion consumers and a combined GDP of US$10 trillion.
Five years is not that far away in the life of a business; many have rolling five-year and even ten-year strategic plans. True, the European Union’s current troubles are a reminder of the difficulties that lie ahead, not only in terms of the journey but, equally importantly, the aftermath after the destination is reached. One view expressed at the East Asia forum was that it is probably wise for ASEAN to focus on economic integration rather than political union or having a common currency.
Whether or not a common market is actually achieved by 2015, businesses in Asia have no choice but to factor in the progress (or non-progress) towards that goal as it impacts on their industry. Even companies with no regional ambitions could be affected because there is no saying whether a competitor from another ASEAN nation would come barging in, perhaps in partnership with a local rival. The other side of the coin are the new opportunities integration can bring in terms of markets, capital, talent, supply chain, R&D and so on.
It will be interesting to see if, in 2015, the ranks of Asia’s millionaires will have expanded far beyond what they are now.
About the Author
Cesar Bacani is senior consulting editor at CFO Innovation.