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Money minting money: Wealth report displays Darwinism
June 23, 2011 3:41 by Atique Naqvi
While a large part of American population is either jobless or struggles to keep jobs, and the financial woes in some euro zone countries have forced people out on streets, guess who is getting richer and richer? The Darwinian theory of the stronger getting stronger is not far from truth, when it comes to the world’s high net worth individuals (HNWIs).
The number of members of this exclusive club and their wealth expanded in 2010 surpassing 2007 pre-crisis levels in nearly every region, according to the 15th annual World Wealth Report, released by Merrill Lynch Global Wealth Management and Capgemini.
Global HNWI population and wealth growth reached more stable levels in 2010, with the population of HNWIs increasing 8.3 percent to 10.9 million and HNWI financial wealth growing 9.7 percent to reach $42.7 trillion (compared with 17.1 percent and 18.9 percent respectively in 2009).
The global population of Ultra-HNWIs grew by 10.2 percent in 2010 and its wealth by 11.5 percent. In 2010, the Middle East had one of the highest growth rates after Africa, with HNWIs population rising by 10.4 percent to 440,000, and their combined wealth increasing by 12.5 percent to $1.7 trillion.
“The past few years have seen great fluctuations in HNWI wealth and population,” said Tamer Rashad, Head of Middle East, Merrill Lynch Wealth Management. “In 2010, we saw growth rates slow down from the higher double-digit levels of 2009 when many markets were quickly returning from significant crisis-related losses.”
At the end of 2010, the number of HNWIs grew in Saudi Arabia and Bahrain but declined marginally in the UAE. Saudi Arabia had 113,300 HNWIs in 2010, an increase of 8.2 percent from 2009. In Bahrain, there were 6,700 HNWIs in 2010, up 24 percent from 2009. While in the UAE, the HNWI population declined by only 3.5 percent to 52,600 in 2010, in contrast to the larger decline of 18.8 percent in 2009.
The global HNWI population remained highly concentrated in the United States, Japan and Germany, which together accounted for 53 percent of the world’s HNWIs. The U.S. is still home to the single largest HNW segment in the world, with its 3.1 million HNWIs accounting for 28.6 percent of the global HNWI population.
“While over half of the global HNWI population still resides in the top three countries, the concentration of HNWIs is fragmenting very gradually over time,” said Karthikeyan Rajendran, Sales Director, Middle East, Global Financial Services, Capgemini. “The concentration of HNWIs among these areas will continue to erode if the HNWI populations of emerging and developing markets continue to grow faster than those of developed markets.”
Europe has become that tired athlete, who is well past its prime as Asia-Pacific posted the strongest regional rate of HNWI population growth in 2010 among the top three markets. While HNWI wealth had already overtaken Europe in 2009, Asia-Pacific has now surpassed Europe in terms of HNWI population, expanding 9.7 percent to 3.3 million, while Europe grew 6.3 percent to 3.1 million. Asia-Pacific HNWIs’ wealth gained 12.1 percent to US$10.8 trillion, exceeding Europe’s HNWI wealth of US$10.2 trillion, where the wealth increase was 7.2 percent in 2010. Asia-Pacific is now the second largest region for both HNWI wealth and population, second only to North America.
Also of note in the Asia-Pacific region, India’s HNWI population became the world’s twelfth largest in 2010, entering the top 12 for the first time.
In an environment of relatively stable but uneven recovery, equities and commodities markets, as well as real estate (specifically in Asia-Pacific), performed solidly throughout 2010.
By the end of 2010, HNWIs held 33 percent of all their investments in equities, up from 29 percent a year earlier. Allocations to cash/deposits dropped to 14 percent in 2010 from 17 percent in 2009 and the share held in fixed-income investments dipped to 29 percent from 31 percent. Among alternative investments, many HNWIs favored commodities. Commodity investments accounted for 22 percent of all alternative investments in 2010, up from 16 percent in 2009.
HNWIs in Asia-Pacific, excluding Japan, also continued to pursue returns in real estate, which accounted for 31 percent of their aggregate portfolio at the end of 2010, up from 28 percent a year earlier and far above the 19 percent global average.
In addition, investments in emerging markets provided opportunities for HNWIs in search of profit.
“Global capital markets and major asset classes performed well over the year on the back of rising investor risk appetite,” said Rashad. “The shift toward equities in 2010 by HNWI investors reflected the search for returns and the desire to recoup more crisis-related losses. We also saw HNWIs continue to favor specific asset classes, such as equities and commodities, based on market opportunity or long-standing preferences.”
Looking at the region, the rate of growth in the size and wealth of the Middle East’s HNWI population was higher than in other regions, after the poor showing in 2009 when the growth in the HNWI population and its wealth lagged all other regions.
In the Middle East, the size of the HNWI population gained 10.4 percent in 2010 to 0.4 million, while wealth jumped 12.5 percent to US$1.7 trillion.
The UAE witnessed a further drop (by 3.5 percent) in HNWI population due to the after-effects of the real estate crisis in Dubai. In the Middle East, HNWI holdings of real estate dropped further to 18 percent of all investments from 23 percent in 2009 as hotspots such as Dubai experienced a major slump in demand.
Private equity investments were much greater in the Middle East (17 percent of alternative investment allocations) than the global HNWI average (10 percent). Real GDP expanded 2.1 percent in the UAE in 2010, while it increased by 3.8 percent in Saudi Arabia. Market capitalization witnessed a drop by 3.9 percent in UAE in 2010. The Middle East had 4k Ultra-HNWIs in 2010, which made up 0.9 percent of the HNWI population.