Major market volatility during 2018 proved damaging for he ranks of HNWIs (high-net-worth individuals) across the world. Those in Asia Pacific were struck particularly hard, with both the overall number falling and the average wealth of those that remain dropping after seven years of growth.
A new survey published by Capgemini on Tuesday showed the number of HNWIs based in Asia Pacific dropped by 2% to 6.1 million over the course of 2018, while the average wealth of the remainder fell by 5% to $20.6 trillion.
The drops experienced in Asia Pacific were far higher than the global average, which saw an overall fall of 0.3% of HNWI numbers and a 3% fall in average wealth. And half of the loss experienced in Asia Pacific was among Chinese HNWIs.
Chirag Thakral, the New York-based deputy head at global financial services market intelligence strategic analysis at Capgemini, blamed the decline in Asia Pacific numbers on a drop of market capitalisation of many stock markets, particularly that of China’s.
“China itself lost around $2 billion of market capitalisation in 2018,” he told AsianInvestor. “In the growth period (which lasted the previous seven years), they [Asia Pacific HNWIs] have been growing the fastest; in the declining period they are slightly more responsive to the downturn on a global level.”
China’s Shanghai Composite Index lost almost 24% in 2018, along with other major indexes such as S&P 500. However, the Chinese index rose by nearly 20% from the beginning of the year to July 10 , showcasing just how volatile the stock market can be.
Adding to the ordeal of last year’s market downturn were fluctuations in the private market and uncertainties arising from China’s trade dispute with the US, which have continued into this year, noted Steven Seow, an executive director of Singapore Consultancy.
SHIFTING ASSET ALLOCATION
The population and wealth of HNWIs in Asia Pacific were not the only things to be affected by the souring economies. The asset allocations of the region’s wealthy have also notably shifted, often involuntarily.
The report noted that cash and cash equivalents overtook equity to become the most Asia Pacific HNWIs’ largest asset class in the first quarter of this year, representing 28.2% of total financial assets. Equity fell from the top position into second place, accounting for 21.9% of HNWIs’ assets.
Thakral said the shift could have been that the region’s wealthy “lost something in equity and cash automatically become the higher component”. Alternatively, it’s possible that they consciously stocked up on cash to prevent further losses.
When asked if cash and cash equivalents will continue to be the lion’s share of Asia Pacific-based HNWIs’ asset allocations, Thakral said he expected it to “be that way for a period of time” if the market volatility drags on.
The survey also focused on a rising desire by HNWIs across the world to adopt emerging technologies to help cushion their portfolios.
Thakral said wealth managers in Asia Pacific are both more receptive to and in a better position than their peers in the US and Europe to offer their wealthy clients high-tech services, because they don’t struggle with as many back-end legacy systems. Hong Kong and Singapore, he noted, have been leading the region in the use of technology.
The report advocated an increased use of these technologies, arguing that they will be critical to help HNWIs bridge gaps in effective wealth planning, “enhance wealth manager efficiency and bolster clients’ service experience”.
Yet HNWIs weren't fully convinced by emerging technologies. The 2019 HNW Insights Survey found that less than 50% of respondents were satisfed with mobile and online platforms or were confident in the digital maturity of their primary bank.
Singapore Consultancy’s Seow noted that investors might be able to use artificial intelligence (AI) technology to aid portfolio allocation, as it would help take the emotion and partiality of wealth managers and family office chief investment officers out of the equation at times of market volatility.
“When we take emotions away, we behave in a more rational manner most of the time,” said Seow. “You do what’s right even when it feels painful.”
However, he warned that AI is not a perfect solution. “As we go about advocating the use of AI, we have to tread carefully,” Seow noted, pointing out that some companies use the technology to market themselves while failing to use reliable algorithms that power AI investment solutions.
“If you lift up the hood [with some companies offering AI services], the algorithm is questionable,” he cautioned, adding that one of challenges was teaching the machine right things to learn from.
The Capgemini survey was based upon responses from 2,500 HNWIs across 19 major wealth markets in North America, Latin America, Europe and Asia Pacific, holding a $68.1 trillion in financial assets.