Wealth grows fastest in emerging markets

The number of high-net-worth individuals surged last year, but with a marked shift in where those wealthy folk are located, according to the 10th annual Capgemini/Merrill Lynch World Wealth report.

The annual survey of global affluence defined HNWI as individuals “with net financial assets of at least $1 million US, excluding their primary residence and consumables.” Globally, the number of HNWIs grew by 6.5% to 8.7 million. The growth rate for ultra-HNWIs was even higher, with the tally increasing by 10.2% to 85,400. That cohort is defined as having at least $30 million US in individual financial assets.

The total value of HNW assets climbed 8.5% to $33.3 trillion US in 2005.

The number of Canadians making it onto the HNWI list increased by 7.2%, while in the U.S., the growth rate of millionaires was 6.8%. However, the U.S. figure represents a decline in the growth rate for the first time in three years, down from 2004’s rate of 9.9%.

“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,” said Robert McCann, vice-chairman and president of Merrill Lynch’s global private client group.

With the HNWI list growing more slowly in North America, the fastest growth was found in emerging markets. South Korea experienced the highest growth rate, at 21.3%, while the number of wealthy in India and Russia grew by 19.3% and 17.4%, respectively.

These high growth rates largely reflect the relatively low number of HNWIs in these markets in the first place, but these countries have also experienced strong expansion in both their economies and their capital markets.

Nevertheless, North America remains home to the largest population of HNWIs. The continent boasts 2.9 million HNWIs, ahead of Europe’s 2.8 million millionaires and 2.4 million in Asia-Pacific.

North America is also still home to the largest accumulation of assets, with holdings topping $10.2 trillion, compared to Europe’s $9.4 trillion and Asia-Pacific’s $7.6 trillion.

Growth in Canada was largely driven by the surging commodities market, which also benefited materials exporters such as Brazil and Mexico. Not only did the rising value of the exports bring more capital into these economies, but it also drove their currencies higher, making the $1 million US cut-off point far more attainable. However, as these currencies eventually decline against the greenback, it may become harder to make the list in future years.

The Asia-Pacific region surpassed Europe as the second most popular location for investment among the wealthy, making up 23% and 22% of their investments, respectively. North America retained its number one spot.

The World Wealth report found that for the most part, American HNWIs failed to take full advantage of the strong growth in overseas markets, focusing far more on domestic investments. But there are signs that this home-bias is changing.

“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,” said Bertrand Lavayssière, managing director, Global Financial Services, Capgemini. “This is particularly evident in investment increases by HNWIs in Asian Markets.”

The report predicts continued interest in international investing, with assets migrating out of North America and Europe in favour of emerging markets.

The report found affluent investors were taking on more risk in 2005, shifting assets out of fixed income instruments in favour of equities. Private equity in particular increased in popularity, while hedge funds appeared to fall out of favour.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(10/11/06)

Steven Lamb