Asia’s High Net-Worths Grow, Increase Hedge Investments

Oct 2 2008 | 9:32am ET

Despite housing and credit problems worldwide, the combined wealth of Asia-Pacific's millionaires increased 12.5% to US$9.5 trillion last year.

According to a new Merrill Lynch and Capgemini survey, which covered Australia, China, Hong Kong, India, Indonesia, Japan, Singapore, South Korea and Taiwan, the number of the region's high net-worth individuals increased 8.7% to 2.8 million, making Asia Pacific home to 27.8% of the world's high net-worth population.

For the third straight year, the region dominated the list of the world's 10 fastest-growing markets for high net-worths, taking half of the top spots. India led the way with 22.7% increase in its high net-worth population, followed by China at 20.3%. South Korea, Indonesia and Singapore posted gains of 18.9%, 16.8% and 15.3%, respectively.

There were an estimated 172,000 high net-worths in Australia at the end of 2007, up 7.1% from a year earlier, with a combined wealth of US$550 billion. The increase in Australia's high net-worth population was driven by economic growth, partly fueled by commodity exports to meet demand in Asian markets.

The number of ultra- high net-worths in Asia-Pacific jumped 16.4% to 20,400 last year, nearly double the 8.8% global growth rate. Ultras, or individuals with more than US$30 million in financial assets, accounted for 26.3% of the region's combined high net-worth wealth.

“The report paints a consistent picture of growth for the Asia-Pacific region,” said Antony Hung, head of Pacific Rim wealth management at Merrill Lynch. “Strong domestic demand and a growing entrepreneurial class continue to spur wealth creation in this part of the world, presenting tremendous opportunities for wealth management providers.”

Market uncertainties in the second half of 2007 prompted Asia-Pacific high net-worths to shift their assets to safer, less volatile asset classes, according to the survey. Last year, the region's wealthy allocated 46% of their holdings to cash/deposits and fixed-income securities, an increase of seven percentage points from 2006. The region’s high net-worths cut their exposure to real estate but the asset class remained a significant source of wealth for high-net-worth investors in the region. They held 20% of their assets in real estate last year, compared with the 14% global average.

In 2009, Asia-Pacific high net-worth are likely to turn to fixed-income securities that offer less volatile returns, the survey said. They are also expected to increase their allocations to alternative investments, mainly in the form of hedge funds or other investments, more suited to uncertain market conditions.

While growth prospects in the near term may be compromised by the global slowdown, the long-term potential of the Asia-Pacific high net-worth marketplace remains strong. The survey estimates that region's high net-worth wealth is will likely to reach US$13.9 trillion by 2012, growing at an annual pace of 7.9% and slightly ahead of the 7.7% global rate. By 2012, Asia Pacific is expected to replace Europe as the second-largest regional repository of high net-worth wealth.

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