Asia Pacific has overtaken North America as the region with the most high-net-worth individuals after its wealthy population surged to a record high last year, new research shows.
The region also grew at the fastest pace worldwide in 2014, driven by India and China, and is tipped to take top spot for HNWI wealth before the end of this year.
However, while the number of HNWIs and the level of their investible wealth increased globally in 2014, it was slower than 2013 (see last year’s study) and at the second slowest rate for five years, dragged down by Latin America.
Ultra high-net-worth individuals with more than $30 million in investible assets acted as the primary driver of the wealth rise with population growth of 8.6%. While they account for 1% of all HNWIs, they represent 35% of wealth.
Again Asia Pacific recorded the fastest UHNWI growth at 16.5%, followed by North America (10.7%). The leading contributors were India (31%) and China (21.6%).
“North America and Asia Pacific have gone head to head in HNWI population over the last few years, with Asia Pacific surpassing North America in 2011 and falling back again in 2012,” the report stated. “Now, despite possible near-term setbacks, Asia Pacific is expected to pull ahead for the long haul.”
Data from the World Wealth Report 2015*, published yesterday by consultancy Capgemini and RBC Wealth Management, found the Asia-Pacific high-net-worth population grew 8.5% last year to 4.7 million. That compared to worldwide HNWI growth of 6.6%, to 14.6 million.
In population terms the next fastest growth came in North America (8.3%), followed by the Middle East (7.7%), Africa (5.2%) and Europe (4%). The number of HNWIs in Latin America shrank 2.1%.
In terms of wealth distribution, Asia Pacific led with year-on-year growth of 11.4% to $15.8 trillion, versus 9.1% growth for North America to $16.2 trillion. The region is forecast to be the key driver of HNWI wealth with a 10.3% annualised growth rate.
Behind the 2014 numbers, North America was helped by strong equity market performance (10.3% versus a global average of 2.9%), while Asia-Pacific was driven by GDP growth of 5.8% versus 2.5% globally.
By market, India emerged as the main driver of growth. It recorded the highest growth worldwide for HNWI population (26.3%) to 198,000 and wealth (28.2%).
Positive sentiment from the election victory of Narendra Modi in May last year drove the nation’s equity market, including a 21.9% increase in the Indian MSCI Index. It also benefited from a global decline in oil prices and reduction in retail inflation.
China was another growth engine with a 17.5% increase in HNWI population to 890,000 and 19.3% for HNWI wealth. The country’s equity markets improved year-on-year and it also benefited from a rise in overall exports.
By contrast, Latin America was the only region to experience declines in HNWI population (-2.1%) and wealth (-0.5%), largely due to a crash in commodity prices and the resulting 14.8% decline in the Latin American MSCI Index.
Europe maintained a slow growth rate of 4% for both HNWI population and wealth as its economy stalled. The Middle East and Africa recorded higher growth than Europe, although their overall levels of HNWI population and wealth remained far lower.
By asset class, equities have overtaken cash as the largest asset in HNWI portfolios, representing an average 26.8% of holdings versus 25.6%. But the report noted this could be due to an increase in asset values as opposed to an active reallocation.
The biggest equity jumps occurred in Japan and Latin America. Although Japanese HNWIs hold more cash (37%) than peers in any region, the allocation has declined by 12.3 percentage points (pps) since the first quarter of 2013. Meanwhile Japanese HNWIs raised equity holdings by 5.6pps in the first quarter this year.
Overall HNWIs hold 26% of their wealth in cash, primarily to maintain lifestyle (36%) or for security in the case of market volatility (31%). The balance of portfolios was allocated to real estate (20%), fixed income (16%) and alternatives (10%).
The report also found widespread use of credit in HNWI portfolios, with 18% of assets financed through borrowed money. Levels were higher among women (19%), those in higher wealth bands (22%) and those under 40 (27%). Credit is largely used as leverage for investments (40%) followed by real estate (22%).
* The World Wealth Report 2015 was based on responses from more than 5,100 high-net-worth individuals across 23 countries. It is the 19th annual edition.