The
number of high net worth individuals (HNWI) in India saw
a 19 per cent increase in 2005 amidst a spectacular increase
in individual wealth in developing countries, according
to the World Wealth Report published jointly by investment
bank Merrill Lynch and consultancy firm Capgemini. The
number of high net-worth individuals rose 21 per cent
in South Korea and 17 per cent in Russia over the past
year, the report published on Tuesday said.
Worldwide
the number of HNWIs rose 6.5 per cent to 8.7 million while
their wealth grew eight per cent to $33 trillion over
the period, the report said. In Asia Pacific, the HNWI
population swelled to 2.4 million in 2005 a 7.3
per cent increase from the year before. These HNWIs'' combined
wealth increased eight per cent to $7.6 trillion. The
growth of the super-rich with huge incomes and rising
capacity to spend is more dramatic in the developing economies,
the report pointed out.
The
number of `ultra high net-worth individuals'' - those having
financial assets of over $30 million saw an even
more dramatic rise of 10 per cent at 85,400 worldwide.
Together, they represent one per cent of the richest and
control 24 per cent of global wealth, the report said.
The
world''s wealthiest were also able to get more for their
money as the cost of luxury items has not kept pace with
the increase in wealth, the report pointed out.
Asia
is home to some of the fastest-growing markets in terms
of HNWI population, occupying five out of the top 10 spots.
The HNWI population also grew dramatically in Indonesia,
where it rose 14.7 per cent; Hong Kong growing by 14.4
per cent, and Singapore, where it increased by 13.4 per
cent. Significant growth was also recorded in South Africa,
Saudi Arabia, United Arab Emirates and Brazil.
The
number of millionaires in the United Arab Emirates rose
to 59,000 in the aftermath of the oil boom and the stock
market surge, the report said. However, the report expects
a fall in the number of millionaires in 2006 as the stock
markets are on decline in both the UAE and Saudi Arabia.
In
the UK, the growth in the number of HNWIs was a modest
seven per cent to just under 450,000, against nearly nine
per cent in 2004. However, the rise in the number of millionaires
in the UK was above the rate of GDP growth and compared
well with that of other EU countries like France and Germany.
Europe
saw a 4.5 per cent overall increase in the number of HNWIs,
compared with 6.8 per cent in the US. Despite a generally
slow GDP growth in eastern Europe, countries such as the
Czech Republic, Hungary and Poland saw sharp increases
in the number of wealthy individuals.
"Market
returns and economic indicators signaled that the creation
of wealth was slowing somewhat in many regions of the
world - most notably, North America - but HNWIs were still
able to benefit from pockets of high performance last
year," Robert McCann, vice chairman and president
of Merrill Lynch''s Global Private Client Group, said.
In
2005, Asia Pacific surpassed Europe as the second most
popular destination for HNWI investments, accounting for
23 per cent of their total assets.
Although
North America remains the world''s most popular region
for investment, HNWIs continue to shift investments away
from that region. In 2004, HNWIs showed a decided lack
of confidence in the US. dollar and reduced their North
American investments accordingly. Even though the dollar
bounced back somewhat in 2005, investors trimmed their
North American allocations because of low returns.
Despite being outpaced by the Asia Pacific region last
year, Europe retained 22 per cent of HNWIs'' worldwide
assets. Strong performance by Europe''s mature capital
markets coupled with strong advances in its emerging markets,
persuaded local HNWIs to increase their allocation to
domestic markets to 48 per cent, up from 40 per cent in
2004.
In response to particularly strong regional stock market
performance in the Asia Pacific region in 2005, Asian
HNWIs fine-tuned portfolio allocations in favor of equities
and cash/deposits. Asian HNWIs boosted their allocation
to equities by two percentage points, to 24 per cent.
These moves were made at the expense of real estate and
alternative investments.
- Global financial services model needed to better-assist
next generation of high net worth individuals Contrary
to the "think globally, act locally" mindset,
HNWIs are increasingly both thinking and acting globally,
as they steadily look beyond traditional domestic markets
to explore investment opportunities in new and emerging
economies around the world.
"Global HNWIs are increasingly showing a preference
for international investments and lifestyles, which
will intensify as an unprecedented amount of wealth
is passed on to a new generation of globally-minded
investors," said Rajan Sehgal, director and NRI
market leader, Merrill Lynch''s ''global private client
group. "In order for financial advisors to meet
the demands of global-minded clients and to gain market
share, the ability to tap several markets with a consolidated
global service model is critical."
He added "advisors offering global solutions will
likely gain clients while also helping to eliminate
the risk of assets being moved to other firms."
Driven by the expectation of better returns and mitigating
risks, HNWIs are becoming more aware of wealth management
opportunities and strategies abroad. In fact, 65 per
cent of HNWI relationship managers surveyed said their
clients are increasingly aware of how wealth is managed
internationally. In addition to investing globally,
nearly three out of 10 HNWIs are buying homes in different
countries. Having an overseas address is especially
popular among investors in the Middle East and Europe,
where 80 per cent and 40 per cent, respectively, of
HNWIs own a home in another country.
"The new HNWIs are truly citizens of the world,
who not only demand more access to a complete ''family
balance sheet'' view of their asset information and
data, but also want strategic, global advice about the
next opportunity," said Bertrand Lavayssière,
managing director, global financial services, Capgemini.
- As international lifestyles become increasingly
common, those managing wealth strain to meet new service
demands
Globally, the Report finds that HNWIs were more aggressive
in allocating their assets last year than in 2004, though
they remained well diversified to maximise investment
protection.
HNWIs increased investments in equities and alternative
vehicles and, anticipating higher bond rates in the
future, shifted funds from fixed-income and cash / deposits.
Globally, funds allocated to private equity rose, while
hedge funds - which have seen steady declines in returns
in the last two years - lost favor among HNWIs.
"We''re seeing an increasing number of HNWIs adopt
the strategies of Ultra-HNWIs and begin to rebalance
their portfolios to increase their exposure to international
investments as those markets continue to deliver higher
returns and uncertainty prevails around the dollar.
This is particularly evident in investment increases
by HNWIs in Asian Markets," said Bertrand Lavayssière,
managing director, global financial services, Capgemini.
- Real estate continued to deliver last l; cool-down
expected
Despite rising interest rates and fears of a downturn
in the sector, real estate continued to provide strong
returns for HNWIs throughout 2005. Although the gains
were markedly lower than those made in 2004, HNWIs held
onto their real estate investments in 2005.
Based on interviews with HNWIs and relationship managers
from multiple institutions it is anticipated that HNWIs
will begin to reduce their real estate allocations in
2006.
- Looking ahead
The report research suggests that HNWIs will continue
to transfer assets away from mature markets and into
emerging markets for the foreseeable future.
It is also expected that their investments in North
America and Europe will continue to decline over the
next few years as HNWIs reallocate funds to Asia Pacific
and Latin America. Findings show that in terms of asset
mix, HNWIs are likely to continue to embrace a slightly
more aggressive portfolio, decreasing their cash/deposit
and real estate positions and moving funds to equities
and alternative investments. The total wealth for HNWIs
is forecast to increase to $44.6 trillion by 2010, based
on average annual growth of 6.0 percent, according to
the Report.
"HNWIs'' heightened interest in international investments,
along with their growing exposure to equities and alternative
investments,
are clear signs that the world''s wealthiest individuals
are not only becoming more sophisticated investors,
they also are more determined than ever to achieve returns
comparable to those experienced in 2003 and 2004,"
said Lavayssière.
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