Merrill Lynch & Capgemini’s `Asia Pacific Wealth Report’

Now, 1,00,000 Supra-rich in India

PFW Bureau / Oct 18

It is a good news for the financial services sector and advisors. The number of High Networth Individuals (HNIs), with a net financial assets of US $ 1 million, has  gone up by 20.5% to over 1,00,000 at the end of the year 2006.  A robust economic growth along with  a bull run in the equity market has led to the rise of HNIs,  the second highest growth rate after Singapore in the Asia Pacific region  during this period.

The combined asset value of one lakh HNIs is valued at US $ 350 billion during this period, it has been stated in the second Asia Pacific Wealth Report jointly published by Merrill Lynch and Capgemini.

The joint report said that Indian HNIs held a combined US$350 billion in financial assets at the end of 2006, representing 4% of total Asia Pacific HNI wealth. A demographic analysis also reveals that the majority of India’s HNIs are in the age group of 41- 55 years.

The growth was driven by the economic expansion as India experienced real GDP growth of 8.8% in 2006 as well as robust stock market performance.  “Robust economic growth and strong financial markets, along with gains in income and credit expansion which drove private consumption, were the key drivers of growth in India’s HNI population,” Pradeep Dokania , head of Global Private Client at DSP Merrill Lynch said after the release of the report on October 17 in Mumbai.  

Out of 100,000 HNIs in India, an estimated 858 are Ultra –HNIs with more than US $ 30 million in financial assets.

Non Resident Indians (NRIs)

In 2006, the greatest concentration of wealthy NRIs was in Hong Kong , followed by Singapore, Indonesia, Thailand and Japan.  Today the Non Resident Indian ( NRI) segment is emerging as a niche segment within the HNI market globally. Given the size of the segment’s wealth within the Asia Pacific region, Singapore and Hong Kong are emerging as financial centers for this market. In 2006, the continued expansion of India’s economy along with India’s upbeat long term growth prospects led to increasing NRI investments into India.

“The performance of the Indian market along with the strength of its currency is making India more attractive to NRI investors,” Aseem Arora, Global Head of NRI markets at Merrill Lynch said.

Fast- Growing Markets

The latest Asia-Pacific Wealth Report takes an in-depth look at the high net worth population and behavior in nine regional markets – Australia, China, Hong Kong, India, Indonesia, Japan, Singapore, South Korea and Taiwan. There were 2.6 million HNIs in Asia Pacific at the end of 2006, an increase of 8.6% from a year earlier, which account for almost 94% of the region’s HNIs. Asia-Pacific is home to 27.1% of the world’s high net worth population.

The wealth of Asia-Pacific HNIs totaled US$8.4 trillion in 2006, an increase of 10.5% over 2005. HNI wealth was concentrated in Japan and China, which accounted for 43.7% and 20.6%, respectively, of the region’s total wealth.

Asia-Pacific was home to five of the 10 fastest growing markets for HNIs, including Singapore, India and Indonesia, where the HNI populations grew by 21.2%, 20.5% and 16.0%, respectively, compared with the global HNI expansion of 8.3%. Korea and Hong Kong were also in the top 10 fastest growing markets globally.

 “Overall, it’s a story of growth, growth and more growth for the HNI marketplaces throughout the region,” Rahul Malhotra, Managing Director, Head of Asia Pacific, Merrill Lynch Global Wealth Management stated. “While HNI investment behaviors differ from market to market, the underlying drivers of wealth remain strong overall and we expect the region will continue to outpace the global rate of growth in HNI wealth.”

Drivers of Wealth

The key drivers of wealth in Asia-Pacific in 2006 were strong growth in real GDP and stock market capitalizations.

The Asia-Pacific region showed among the highest GDP growth rates in the world. China and India drove the region with 10.5% and 8.8% real GDP growth, respectively. Additionally, savings rates, as a percentage of GDP, were higher in Asia-Pacific than most developed markets. China, Singapore and Hong Kong all had domestic savings rates in excess of 40%. 

China, Indonesia, India and Hong Kong benchmark stock indices outperformed most mature capital markets, as well as their peer markets in the region with returns over 30%.        

“Our analysis has revealed several interesting findings on how distinctly different demographics can influence, and the subsequent impact on service models of wealth management providers. For instance, 76% pf the HNIs in India were younger than 55 years of age. By contrast, as significant proportion of HNIs were over 55 in Japan (73%) and South Korea (61%). While younger HNIs are less risk averse in their approach to investing and desire higher returns within a shorter timeframe, HNIs over age 55 tend to favor solutions that provide wealth preservation,” said Salil Parekh, Executive Chairman, Capgemini India.

Non-traditional investment products are gaining in popularity as Asian investors seek better domestic returns and foreign institutions seek involvement in the high-growth region. For example, real estate investment in Asia-Pacific has grown due to the strong performance of commercial property and REITs  (real estate investment trusts).

Asia-Pacific HNI Investments

Within the region, asset allocation differed significantly from market to market. Australian HNIs, for example, allocated 37% of their assets to equities, the highest level in the region. Investors in China and Indonesia also had relatively high equity allocations. Investors in South Korea, on the other hand, allocated the largest percentage of their portfolios to real estate.

Asia-Pacific HNIs are increasingly looking at internationalizing their investment portfolios and, over the longer term, re-balancing their asset allocations in favor of alternative investments, equities and fixed income. In addition, Asia-Pacific HNIs are increasing their international exposure although still maintain a very regional portfolio focus. Slightly more than half of Asia-Pacific HNIs’ assets were invested within the region and slightly more than a quarter of their holdings were allocated to North America.

Spotlight on Asia-Pacific Distinctive Local Market Opportunities

HNWI investment behaviors differ from market to market in key attributes such as sources of wealth, demographics, concentration of Ultra-HNWIs and the level of portfolio internationalization.

The primary sources of wealth for China and Australia, for example, are business and stock options, whereas inheritance and income are the main wealth sources for Japan’s HNIs.

The majority of HNIs in all markets are male; however, the proportions of male HNIs are highest in India, Australia and South Korea at more than 80%. On the other hand, females represent 43% of Taiwan’s HNI population, and more than 30% in China and Hong Kong, the report found.

The top manager of Merrill Lynch and Capgemini said that the increasing competition is leading to the lowering of professional fee of the financial advisors and shortage of them in the market.