The slowdown in the economy has taken its toll on Asia Pacific’s rich as the population of high net worth individuals (HNWIs) fell 14.2% to 2.4 million in 2008, according to the fourth annual Asia-Pacific Wealth Report released this week 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%. In Hong Kong, there were an estimated 37,000 HNWIs at the end of 2008, a decline of 61.3% from the previous year. The decrease was matched by a 65.4% decline in their combined wealth to US$181 billion.
A slowdown in the economy, coupled with challenging equity and property markets, contributed to the wealth erosion among Hong Kong HNWIs last year. Moreover, a large proportion of Hong Kong HNWIs were in the US$1-5 million wealth band, and many of them saw their wealth fall below the US$1 million threshold last year as market losses deepened. Looking ahead, wealth accumulation is set to resume in Hong Kong as the economy recovers and capital continues to flow into the local market.
Despite last year’s decline, the average net worth of Hong Kong HNWIs remained the highest in the region at US$4.9 million. The average net worth of Asia Pacific HNWIs stood at US$3.1 million, compared with a global average of US$3.8 million.
“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,” said Bertrand Lavayssière, Managing Director Global Financial Services, Capgemini. 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, boosted 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%.
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, limiting their losses last year.
Despite steep market capitalization losses, China avoided the larger losses in HNWI numbers seen in other markets due to the combination of its closed markets and 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.
In a move to preserve wealth, Asia Pacific HNWIs increased their allocations to safer and simpler investments last year 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.