Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
Merrill Lynch stands firm in its projection û initially released in June û that assets of high-net-worth individuals (HNWIs) in Asia-Pacific will grow at an annual rate of 7.9% to reach $13.9 trillion by 2012. The current market conditions only affect the near-term growth prospects but the long-term projections remain intact, Merrill Lynch says.
The ability to reallocate portfolios among asset classes and geographic focus, in many cases with the help of professional advice, will allow Asia-PacificÆs HNWIs to generate at least decent returns on their portfolios this year, says Victor Tan, Merrill Lynch Global Wealth ManagementÆs market director for Hong Kong.
Stephen Corry, Hong Kong-based Asia-Pacific investment strategist at Merrill Lynch Global Wealth Management, says the ability of AsiaÆs affluent investors to expand their worth depends largely on where their wealth is coming from. He notes that a significant portion of the wealth accumulated by rich Asians comes from corporate profits and dividends, which are expected to survive the current market turmoil in relatively good shape.
ôHere in Asia, economic growth and profit growth remain very resilient. They have slowed, but they have remained relatively strong, particularly in China,ö Corry says, adding that this will ensure that the core assets of AsiaÆs affluent investors will not be severely affected by recent developments.
Merrill Lynch defines HNWIs as those with net assets of at least $1 million (excluding primary residences and consumables) and ultra HNWIs as those with net assets of at least $30 million.
The HNWI population in Asia-Pacific rose 8.7% to 2.8 million last year, and their combined wealth rose 12.5% to $9.5 trillion. Asia-Pacific exceeded the HNWI global growth in terms of both population and assets.
Asia was home to five of the worldÆs 10 fastest-growing markets by HNWI population.
India was the worldÆs fastest-growing HNWI market with a 22.7 % gain to 123,000, followed by China (+20.3% at 415,000), Korea (+18.9% at 118,000), Indonesia (+16.8% at 23,000) and Singapore (+15.3% at 77,000). Merrill Lynch expects these five markets in Asia to continue to dominate the region in terms of the HNWI population over the next five years.
In terms of average net worth per HNWI, Hong Kong is on top. The average net worth of these individuals in Hong Kong last year was $5.4 million, followed by China with $5.1 million, and Singapore with $4.9 million. The average net worth in the region was $3.4 million. Japan was at the bottom of the list with $2.5 million.
These findings were contained in the third Asia-Pacific Wealth Report, which was derived from an annual world report released by Merrill Lynch and consulting firm Capgemini. The Asia-Pacific markets covered in the regional report include Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Singapore, Taiwan, and Vietnam.
The report notes that emerging HNWIs in Asia-Pacific û or those with net assets of $750,000 to $1 million (excluding primary residences and consumables) û are becoming a significant market for wealth managers to target through a priority banking model, which is a lower-tiered service compared with the private banking model. For instance, the priority banking model typically has a high advisor to client ratio or 1:100 compared with the low ratio of 1:20 for the private banking model. In fact, many of the emerging HNWIs prefer a do-it-yourself approach to managing their portfolios, often turning to the internet or other electronic channels.
Within Asia, China, India, Vietnam and Thailand offer the best opportunities for wealth managers who are targeting emerging HNWIs, the report says.
In the near- to medium-term, HNWIs in the region are expected to increase their allocations to cash, cash deposits and fixed-income instruments. They already had around 46% of their portfolios in these assets last year, up from 39% in 2006. By 2009, the allocation is expected to rise to 50%.
In contrast, they reduced their allocation to real estate to 20% of their total portfolio last year from 29% in 2006. This allocation is expected to sharply fall to 13% by 2009.
Despite the expected move away from real estate, Corry notes that worthy investments within this asset class are still plentiful.
ôAsia is not in the same predicament that the US housing market is in. US banks lent very aggressively to people who were unfortunately not able to pay for their mortgage,ö he says. ôAsia suffered its own financial crisis 10 years ago and the regionÆs banks are much more solid in their lending practices. I think once we get past the difficult financial conditions, we will see a resumption in pricing trends leading higher.ö
Overall, Merrill Lynch expects HNWIs in Asia to reduce their investments in domestic markets in favour of faster growing regions such as Latin America and Eastern Europe.
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