Autumn 2012

INSIDE VIEW: Asia’s rich

JewelleryThe number of rich people in the Asia Pacific region has surpassed that of North America for the first time. Capgemini’s Jean Lassignardie and RBC Wealth Management’s George Lewis go into more detail. Emerging countries in Asia Pacific will be driving a significant amount of growth in the world’s population of high-net-worth individuals (HNWIs). This offers the wealth management industry significant opportunities. Beyond those implicit in the region’s robust macroeconomic indicators, the most exciting is that very little of the region’s HNWI wealth is professionally managed and tends to sit in current accounts at local banks. Increasingly, however, these assets are coming into the wealth management industry as client sophistication grows. A great deal of the regional wealth is held by entrepreneurs in their own companies. We are also seeing some of these companies come to a crossroads: they have outgrown their local markets and are facing pressure to go regional. Not all will do so. Those that decide to cash out will develop new wealth management needs that often cannot be satisfied by the local banking industry. The Asian wealth management market has abundant room for growth among existing players, as well as newcomers with viable offerings that choose to set-up here. However, the cost to entry is high. Many wealth managers who shift their focus to Asia will likely not succeed, especially if they do not have the scalability needed to take on new clients without seeing their costs spiral out of control. They will also need to be sensitive to local needs, which means predominantly hiring front line staff with local language abilities. This is an important and often under-estimated skill. Since European professionals re-deployed to manage these opportunities often do not have that skill. Managing money in Asia will, for the most part, be about managing wealth generated locally and within the Asia region. Only a small part of the assets under management in Asia have come here from outside the region. According to our Annual World Wealth Report 2012, the number HNWIs in the Asia Pacific region has reached 3.37 million, overtaking North America’s 3.35 million. North America, however, remained the largest region for HNWI wealth at $11.4 trillion, compared with $10.7 trillion in the Asia Pacific region. Worldwide, the population of HNWIs grew just 0.8% last year, after robust gains of 8.3% in 2010 and 17.1% in 2009. Their aggregate investible wealth, measured by asset values, declined by 1.7%. This was the second drop in the past four years. The decline came amid high levels of volatility in global markets and challenging macroeconomic conditions. The eurozone crisis also took its toll on macroeconomic conditions in Asia-Pacific as the weakened state of Europe’s developed economies reduced demand for Asia Pacific goods. Still, the number of HNWIs in Asia Pacific grew 1.6%, while the number in North America fell 1.1%. Bumpy ride
Investable wealth declined in both regions, but by less in Asia Pacific, where it was down by 1.1%, than in North America, where it was down by 2.3%. Japan has the world’s second-largest HNWI population, with 1.8 million. The number increased by 4.8% over the past year and accounts for a large share of the region’s total HNWI population. But it is the emerging and developing markets of Asia Pacific that are the most dynamic ones. HNWI populations have shown strong sustained growth in recent years – albeit from small numbers – in countries such as China, Hong Kong and India. In those countries gross national income and other drivers of wealth, such as equity-market performance, have been robust. The combined wealth of Asia Pacific HNWIs had already topped Europe’s in 2009 and that gap widened in 2010. Nevertheless, the growth has not been entirely smooth. Last year, Hong Kong and India featured among the countries losing the most HNWIs. India’s equity market capitalisation slump demonstrated a lack of faith in the political process and the slow pace of domestic reforms disappointed investors. These domestic factors, combined with the slowdown in GDP growth, led to an 18% reduction in the size of the country’s HNWI population. In Hong Kong, stock market capitalisation dropped 16.7% as eurozone concerns weighed on the outlook for growth. In the process, the country’s HNWI population shrank 17.4%. Singapore’s HNWI population was also hit and the number of HNWIs there fell 7.8%. These declines clearly constrained the pace of growth in the region’s HNWI population as a whole, though there were pockets of strength. Thailand was one of the Asia Pacific countries in which the HNWI population grew, at 12.8%, on significant gains in real estate, a solid gross national income performance and only a 3.3% decline in equity-market capitalization. Signs of economic weakness in fast-growing economies, such as China and India, will have an effect on the size and composition of the global HNWI population. Various changes in political leadership around the world and the potential for intermittent but high volatility in many markets also have its effects. Jean Lassignardie is the chief sales and marketing officer, global financial services, at Capgemini. George Lewis is group head at RBC Wealth Management ©2012 funds global

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