The Asia-Pacific Wealth Report 2013 was recently published and this cooperative effort by Capgemini and RBC shows that, among other things, the population and wealth of that area’s high net worth individuals increased at double and triple the rate over the rest of the world for the last five years. David Wilson, Head of Strategic Analysis Group, Market Intelligence, Capgemini Financial Services, took the time to answer some questions for Big4.com
- Why the exponential growth rate for Asia-Pacific’s high net worth individuals (HNWIs)? What are the contributing factors?
The main contributing factors come down to economic variables and financial markets.
Economically, Asia-Pacific excluding Japan registered solid 5.5% GDP growth in 2012, which easily surpassed the global GDP growth rate of only 2.2%. China, the region’s largest economy, helped drive overall growth. While China’s economy slowed, it avoided a widely feared hard landing in mid-2012 and subsequently recovered somewhat. In addition, Industrialized Asia countries (Japan, Australia, New Zealand) bucked the regional trend of decelerating growth. Japan’s growth represented a substantial increase from the year before, benefitting from massive government spending aimed at rebuilding infrastructure following the destructive natural disasters of 2011.
When it comes to financial markets, equities and real estate accounted for almost half of the wealth in HNWI portfolios in Asia-Pacific (excluding Japan). While stock markets remained lackluster in the first half of 2012, owing to heightened uncertainty arising from macroeconomic concerns in Europe, signs of lower growth in the U.S., and the potential hard landing of China’s economy, they rebounded over the second half as some of these concerns receded and as policy makers took strong actions to boost economic growth. The MSCI AC Asia-Pacific index gained 13.6% in 2012, following poor performance in 2011 (down 17.3%). (see also Figure 8 on page 13 of APWR 2013 for data).
Real estate performance in Asia-Pacific was mixed, though aggregate housing prices across the region increased in 2012. The Asia-Pacific Select REIT index rose by 28.6% (after falling by 12.2% in 2011), which was much higher than global growth of 18% in 2012. Much of the growth came from Hong Kong (20.4%) and India (6.1%), where housing supply lagged demand. Other real estate markets witnessed lower or negative growth in 2012.
- How does equity market performance factor in?
We first calculate total wealth in a given country. To do that we need to first calculate national savings which is gross domestic product minus consumption in each country and that gives you the total pool of national savings. When we do then is adjust that national savings number by where they were invested and the performance of those investments. So it terms of equities, it’s one of the key elements that defines what happened to that pool of national savings.
When you look at portfolios in Asia Pacific, it factors in quite significantly when you look at asset allocation. Almost a quarter of Asia Pacific equities are held in equities in a given year. When you add real estate you get to about half the HNWI portfolios.
3.Hong Kong and India are especially strong performers? Why is that?
All Asia-Pacific markets registered positive growth, although the degree of growth varied. Hong Kong and India were the biggest gainers in HNWI population, following steep declines in 2011. Hong Kong increased its HNWI population by 35.7% and its wealth by 37.2%, while India grew its HNWI population by 22.2% and wealth by 23.4%. The primary reasons, beyond continued economic growth, for such strong performance were equity and real estate markets, with Hong Kong especially strong in each during 2012.
- What are the bigger takeaways from the Asia-Pacific Wealth Report 2013 (APWR)?
The biggest takeaways from this year’s report are:
1. The region’s high net worth population and their wealth reached record levels in 2012, and Asia-Pacific HNWI population and wealth are forecast to become the largest of all region’s by 2015
2. Asia-Pacific HNWIs have unique investing behaviors and preferences compared to other regions and also by country within the region
3. Asia-Pacific (ex-Japan) HNWIs have high levels of trust and confidence in the wealth management industry, and their ability to generate wealth in the near future
4. Given the growing influence of the region and the inherent challenges in serving such a diverse and complex HNWI market, leading firms will have the ability to combine local HNWI knowledge with a scalable value proposition that has digital capabilities, in line with what Asia-Pacific HNWIs are looking for
- What does the APWR say about the future of the region?
The prospects for regional wealth are bright in Asia-Pacific. We expect the attainment of new record levels of wealth through 2015, when wealth is forecast to reach $15.9 trillion, up from $12 trillion in 2012. Such growth would put Asia-Pacific wealth up almost 70% compared to pre-crisis levels from 2007.
- Can you supply a quick background/history of the report?
We certainly consider this to be the world’s leading report and benchmark on the wealth management industry, partially because it’s been around since 1997 and the reports from then until 2011 were done in partnership with Merrill Lynch. In 2012, we switched the partnership to Royal Bank Of Canada Wealth Management. This year we launched the High Net Worth Insights Survey. The survey spanned 21 countries and over 4,400 high net worth individuals. These last two years have really taken things to the next level to add not only what we see from our data and when we interview executives, but also adding the client voice which is absolutely critical if you’re going to make an accurate commentary on what’s going on in the industry.