Thailand, Indonesia lead growth of Asia’s wealthy

The emerging economies of Thailand and Indonesia are driving growth in wealthy individuals across Asia-Pacific – the world’s most populous region for high-net-worth individuals (HWNIs), as reported earlier this year.

Thailand saw a 12.8% increase in the number of individuals with $1 million or more in net worth in 2010-11 (despite the flooding which wreaked havoc to the economy last year), while Indonesia witnessed 8.2% growth, finds the Asia-Pacific Wealth Report 2012 published by RBC Wealth Management and consultancy Capgemini.

But perversely, the performance of both nations goes against a sharp slowdown in the growth rate of the region’s HNWI community, with Asia-Pacific expanding just 1.6% year-on-year, compared with 9.7% in 2009-10.

The volatile markets of Hong Kong and India were most to blame. The former saw 17,000 drop out of the HNWI band in 2011, a 17.4% decline year-on-year, while the latter saw an 18% decline in HNWI population.

It partly explains why Asia-Pacific HNWIs as a whole suffered a -1.1% decline in financial wealth for 2010-11, compared with +12.1% the previous year. This was led by a -20.1% drop in Hong Kong and a -18% dip in India.

Alex Khein, COO of BlueBay Asset Management who presented the report findings yesterday, explained that the story of HNWIs in Hong Kong and India was correlated to the performance of equity markets. The MSCI Index for India led the way with a -38% decline for 2010-11.

He noted, too, that stock market declines would have a commensurately bigger negative impact on the net worth of ultra-high-net-worth individuals, who account for just 0.6% of the HNWI community but 25% of the wealth.

Interestingly, Japan showed an increase in both HNWI population and their net worth. Khein pointed out that the government there has done a good job in stimulating the economy and spurring consumer demand following the earthquake in the first quarter of 2011.

At the same time, Japanese HNWIs have been more conservatively invested in fixed income, cash and real estate and as such were not so negatively impacted by an equity market slump.

Overall the report found that the $1 million to $5 million bracket made up 91.5% of the HNWI universe and accounted for 51.8% of the net worth, while the mid-tier $5 million to $30 million forms 7.9% of the population and 23.8% of the wealth.

The report pointed to three drivers of wealth creation: GDP growth, asset prices and entrepreneurial activity.

While world growth slowed to 2.7% in 2011 (from 4.1% in 2010), that was underpinned by 6.5% macroeconomic growth in Asia-Pacific (ex-Japan).

Clearly real GDP growth rates slowed across the board, with Thailand reporting among the sharpest year-on-year declines from +7.8% in 2010 to just +0.1% last year.

At the same time inflation increased from country to country (with the exception of India and Japan). “Policymakers now need to balance stimulus versus inflationary pressures and bubbles that are forming in various sectors,” notes Khein.

“The stimulating effect of quantitative easing on a global basis has lifted all asset prices up, but feed-through to the real economy is not yet proven.”

In terms of entrepreneurial activity, the report noted that the services sector is the key economic driver of the region and is consistently growing in China as a proportion of GDP. It is an area that Khein says he expects to grow in particular.