Emerging markets drove the growth in the world’s population of high net worth investors (HNWs) last year, according to the latest research from Merrill Lynch and Capgemini.
It found that the number of HNWIs (defined as individuals with net assets of at least US$1 million, excluding their primary residence and consumables) in the world increased 6% in 2007 to 10.1 million, and the number of ultra high net worth individuals (net assets of at least US$30 million) increased by 8.8%. The collective wealth of the world’s HNWIs increased 9.4% to US$40.7 trillion in 2007, and for the first time in the history of the report, the average assets held by HNWIs exceeded US$4 million.
The largest regional growth of the HNWI population occurred in the Middle East, Eastern Europe, and Latin America, with increases of 15.6%, 14.3%, and 12.2%, respectively. Gains in commodity exports, paired with growing international acceptance of emerging financial centers as significant global players, contributed to the growth rates of emerging economies, it said.
“This year’s report found that the number of high net worth individuals, and the amount of wealth they control, continued to increase in 2007, with the greatest wealth being created in the emerging markets of India, China, and Brazil,” said Robert McCann, president of Global Wealth Management at Merrill Lynch. “While trends indicate opportunities exist for wealth management firms to tap into new growth markets, success will go to those that recognize their existing service, delivery and technology strategies must be adapted and tailored to meet the unique needs of these target growth markets.”
India led the world in HNWI population growth at 22.7%, driven by market capitalization growth of 118% and real GDP growth of 7.9%. China experienced the second largest expansion of their HNWI population, advancing 20.3% – fueled by market capitalization growth of 291% and real GDP growth of 11.4%. Brazil enjoyed the third-highest HNWI growth rate in 2007, with a 19.1%, and Russia’s HNWI population growth slipped from 15.5% in 2006 to 14.4% in 2007.
Emerging market gains were driven by market capitalization growth and a record wave of IPOs in the region. The BRIC nations accounting for 39% of global IPO volume in 2007, up from 32% in 2006. Moreover, net private capital flows to emerging markets also increased in 2007.
Merrill noted that the diverging macroeconomic environments at either end of 2007 helped define HNWIs’ asset allocation strategies. In the early months of 2007, HNWIs bet heavily on riskier asset classes. But as the year wore on, and financial market turmoil and economic uncertainty intensified, HNWIs began to retrench, shifting their investments to safer, less volatile asset classes. The report found that cash/deposits and fixed income securities accounted for 44% of HNWI financial assets, up nine percentage points from 2006. Fixed income securities saw a six percentage point increase in asset allocation, accounting for 27% of holdings, up from 21% in 2006. Globally, HNWIs continued to decrease their holdings in North America and showed greater interest in domestic market investments, preferring more familiar ground amid heightened levels of economic uncertainty.
The Middle East and Europe boasted the most environmentally attuned HNWI and Ultra-HNWI populations, with participation ranging from around 17% to 21% in 2007. In comparison, only 5% of HNWIs and 7% of Ultra-HNWIs in North America allocated part of their portfolio holdings to green investing. North America was also the only region in which social responsibility was the primary driver of HNWIs’ green investing. Among HNWIs worldwide, approximately half pointed to financial returns as the primary reason for their allocation to green investing.
Looking ahead, the firms predict that, “Despite heightened uncertainty regarding the near-term global outlook, still-strong fundamentals in emerging markets are likely to sustain high levels of growth. The balance between emerging market strength and mature market recovery will likely persist through 2008, with the short-term outlook subject to variability given that aspects of potential risk may still be unknown.”
“By and large, the global economy has two distinctive obstacles to overcome: inhibitors to growth in mature markets and high risks of inflation in emerging markets,” it said. The report predicts that global HNWI wealth will grow to US$59.1 trillion by 2012, advancing at a rate of 7.7% per year.
Millionaires club gets bigger: survey
- By: IE Staff
- June 24, 2008 October 31, 2019
- 12:10