There were 165,000 high net worth individuals in Canada at the end of 2001, up slightly compared to the previous year, according to Cap Gemini Ernst & Young and Merrill Lynch, which yesterday published the 2002 World Wealth Report.

“The number of HNWIs in North America rose 1.8% to 2.22 million individuals over the past year,” said Colin Deane, Principal with financial services at Cap Gemini Ernst & Young Canada.

HNWIs are people with financial assets of at least US$1 million, excluding real estate. Ultra-HNWIs have financial assets of more than US$30 million.

Deane said: “The value of their combined wealth grew 1.7% to US$7.6 trillion, in contrast to the 11.9% drop in the value of the Standard & Poor’s 500 index over 2001.”

“In the region with the highest proportion of its wealth in equities anywhere in the world, a stock market decline of this magnitude was bound to retard the upward trend of HNWI wealth.”

He added: “North American HNWIs accounted for 29% of global HNWI wealth in 2001. Their wealth has grown 313% since 1986, and is forecast to rise to US$11.2 trillion by the end of 2006.”

“Declining stock markets also did their share of damage to HNWI wealth in 2001,” noted the report. But underneath this volatility, some analysts identified a “stealth bull market”.

The report noted that in several markets, a significant number of stock values rose substantially, but were eclipsed by the spectacular losses suffered by large-cap stocks, especially in the technology sector. For example, in the United States although the S&P500 index dropped 11.9% in 2001, over 40% of the index’s stocks rose in value. Smaller-cap stocks fared relatively well as a group, with the S&P index of 600 smaller stocks up 5.7% at year-end.

“Anecdotal evidence suggests that HNWIs were among the first to recognize and benefit from this “stealth bull market,” said Michael Marks, chairman of Merrill Lynch’s International Private Client group and Merrill Lynch Investment Managers

As for the future, Marks forecast: “We expect modest economic recovery through 2003, and that HNWI wealth will rise by an average of 8% a year, reaching US$38.5 trillion by the end of 2006. These growth rate projections reflect the belief that, despite a difficult time, global GDP and the stock markets have exhibited significant underlying powers of recovery. As that strength re-emerges, HNWIs will once again invest more confidently in these higher risk, higher yielding financial assets, fuelling their wealth growth over the longer term.”