The number of high net worth Individuals (HNWIs) in India at the end of 2006, grew by 20.5% to 100,000. This makes India the second fastest growing population of HNWIs in the Asia Pacific Region, according to the second Asia-Pacific Wealth Report published by Merrill Lynch and Capgemini. HNWIs are people with net financial assets of at least US$1 million, excluding their primary residence and consumables.
Indian HNWIs held a combined US$350 billion in financial assets at the end of 2006, representing 4% of total Asia Pacific HNWI wealth. A demographic analysis also reveals that the majority of India’s HNWIs are between the ages of 41- 55 years, said the report.
The growth was driven by the economic expansion as India experienced real GDP growth of 8.8% in 2006 as well as robust stock market performance. "Robust economic growth and strong financial markets, along with gains in income and credit expansion which drove private consumption, were the key drivers of growth in India’s HNWI population," said Pradeep Dokania , head of Global Private Client at DSP Merrill Lynch.
Of the 100,000 HNWIs in India, an estimated 858 are Ultra –HNWIs with more than US$30 million in financial assets.
Non Resident Indians:
In 2006, the greatest concentration of wealthy NRIs was in Hong Kong , followed by Singapore, Indonesia, Thailand and Japan. Today the Non Resident Indian ( NRI) segment is
INDIA WWR:
Emerging as a niche segment within the HNWI market globally. Given the size of the segment’s wealth within the Asia Pacific region, Singapore and Hong Kong are emerging as financial centers for this market. In 2006, the continued expansion of India’s economy along with India’s upbeat long term growth prospects led to increasing NRI investments into India.
"The performance of the Indian market along with the strength of its currency is making India more attractive to NRI investors," said Aseem Arora, Global Head of NRI markets at Merrill Lynch.
Fast- Growing Markets:
The latest Asia-Pacific Wealth Report takes an in-depth look at the high net worth population and behavior in nine regional markets – Australia, China, Hong Kong, India, Indonesia, Japan, Singapore, South Korea and Taiwan. There were 2.6 million HNWIs in Asia Pacific at the end of 2006, an increase of 8.6% from a year earlier, which account for almost 94% of the region’s HNWIs. Asia-Pacific is home to 27.1% of the world’s high net worth population.
The wealth of Asia-Pacific HNWIs totaled US$8.4 trillion in 2006, an increase of 10.5% over 2005. HNWI wealth was concentrated in Japan and China, which accounted for 43.7% and 20.6%, respectively, of the region’s total wealth.
Asia-Pacific was home to five of the 10 fastest growing markets for HNWIs, including Singapore, India and Indonesia, where the HNWI populations grew by 21.2%, 20.5% and 16.0%, respectively, compared with the global HNWI expansion of 8.3%. Korea and Hong Kong were also in the top 10 fastest growing markets globally.
"Overall, it’s a story of growth, growth and more growth for the HNWI marketplaces throughout the region," says Rahul Malhotra, Managing Director, Head of Asia Pacific, Merrill Lynch Global Wealth Management. "While HNWI investment behaviors differ from market to market, the underlying drivers of wealth remain strong overall and we expect the region will continue to outpace the global rate of growth in HNWI wealth."
Drivers of Wealth:
The key drivers of wealth in Asia-Pacific in 2006 were strong growth in real GDP and stock market capitalizations. The Asia-Pacific region showed among the highest GDP growth rates in the world. China and India drove the region with 10.5% and 8.8% real GDP growth, respectively. Additionally, savings rates, as a percentage of GDP, were higher in Asia-Pacific than most developed markets. China, Singapore and Hong Kong all had domestic savings rates in excess of 40%.
INDIA WWR:
China, Indonesia, India and Hong Kong benchmark stock indices outperformed most mature capital markets, as well as their peer markets in the region with returns over 30%.
"Our analysis has revealed several interesting findings on how distinctly different demographics can influence, and the subsequent impact on service models of wealth management providers. For instance, 76% pf the HNWIs in India were younger than 55 years of age. By contrast, as significant proportion of HNWIs were over 55 in Japan (73%) and South Korea (61%). While younger HNWIs are less risk averse in their approach to investing and desire higher returns within a shorter timeframe, HNWIs over age 55 tend to favor solutions that provide wealth preservation," said Salil Parekh, Executive Chairman, Capgemini India.
Non-traditional investment products are gaining in popularity as Asian investors seek better domestic returns and foreign institutions seek involvement in the high-growth region. For example, real estate investment in Asia-Pacific has grown due to the strong performance of commercial property and REITs (real estate investment trusts).
Asia-Pacific HNWI Investments:
Within the region, asset allocation differed significantly from market to market. Australian HNWIs, for example, allocated 37% of their assets to equities, the highest level in the region. Investors in China and Indonesia also had relatively high equity allocations. Investors in South Korea, on the other hand, allocated the largest percentage of their portfolios to real estate.
Asia-Pacific HNWIs are increasingly looking at internationalizing their investment portfolios and, over the longer term, re-balancing their asset allocations in favor of alternative investments, equities and fixed income. In addition, Asia-Pacific HNWIs are increasing their international exposure although still maintain a very regional portfolio focus. Slightly more than half of Asia-Pacific HNWIs’ assets were invested within the region and slightly more than a quarter of their holdings were allocated to North America.
Spotlight on Asia-Pacific Distinctive Local Market Opportunities:
HNWI investment behaviors differ from market to market in key attributes such as sources of wealth, demographics, concentration of Ultra-HNWIs and the level of portfolio internationalization.
The primary sources of wealth for China and Australia, for example, are business and stock options, whereas inheritance and income are the main wealth sources for Japan’s HNWIs.
INDIA WWR:
The majority of HNWIs in all markets are male; however, the proportions of male HNWIs are highest in India, Australia and South Korea at more than 80%. On the other hand, females represent 43% of Taiwan’s HNWI population, and more than 30% in China and Hong Kong, the report found.
"The intensifying competition for HNWI clients, the strong growth in HNWI wealth and numbers and the varying individual product maturity across HNWI markets, pose significant challenges and complexities to the financial advisory firms servicing these markets," says Gregory Smith. "Already we are seeing sharper pricing, product commoditization and a shortage of qualified advisers across the region."