Asians tipped to win wealth race with North America

Asian high-net-worth individuals will overtake their North American counterparts within three years, both in terms of population and wealth, finds a survey by RBC Wealth Management and consultancy Capgemini.

Asian wealth accumulation is forecast to rise 32.5% to $15.9 trillion in 2015 from $12 trillion in 2012, even as investors in the region continue to exhibit cautious investing behaviour due to market uncertainty.

The population of wealthy Asians grew 9.4% year-on-year in 2012, second only to North America, which experienced 11.5% growth. North American HNWIs hold $12.7 trillion in investable wealth.

While wealth accumulation between rich Asians and North Americans is still a “tight horse race”, according to Adam Matthews, managing director and head of Asia for RBC Wealth Management, the firm is forecasting that wealthy Asians will boast $15.9 trillion by 2015, surpassing $15 trillion for North Americans. The survey did not offer percentages on how much the Asian HNWI population would increase over North America over the period.

Hong Kong, a notoriously volatile market, saw its high-net-worth population shoot up by 35.7% to 114,000 in 2012. That compares with a 17.4% drop in the city in 2011, although it should be noted this is because of the high level of individuals with wealth on the cusp of the threshold. When the market drops, they drop out of the $1-$5 million HNWI wealth bracket, and vice-versa when it rises.

Accordingly, last year wealth rose 37.2% in Hong Kong to $560 billion overall, buoyed by strong equity and real estate markets – the asset classes most favoured by local investors.

However, some 29.7% of Hong Kong investors held their money in cash and deposits last year, exhibiting caution, which is quite unusual for a trading-dominated community, RBC notes.

“Stock markets continue to be volatile, there’s no big surprise there. But what we were surprised at is the amount of cash we’ve seen held by Hong Kong investors,” Simon Ng, managing director at RBC Wealth Management, tells AsianInvestor.

He notes that while Hong Kong investors normally have a high risk appetite, market volatility that started with the collapse of Lehman Brothers and continued with the eurozone debt crisis still resonates.

Similarly, some 22.7% of Asian investors held money in cash last year, on par with other global investors barring Japan, where nearly 50% of investors were in cash in 2012, with only 22.6% investing in equity markets. Ng expects these numbers to shift this year as a result of ‘Abenomics’.

This shift to cash reflects the desire for wealth preservation as opposed to generation globally – some 33% of global investors cited preserving wealth as a priority last year, compared with 26% who were more interested in wealth creation.

Equity was a hot spot for North American investors, with 37.2% putting money in stock, as against 22.3% of Asian investors. Asia-Pacific HNWIs continued to favour real estate, allocating 24.6% to the asset class, compared with 13.5% exposure for North Americans.

The survey also examines the impact of global regulations on private banks, noting an increasing percentage of staff say they're spending more time deciphering complex regulation than generating wealth.

Ng tells AsianInvestor that global banks have spent “a significant amount of time dealing with regulatory requirements”.

The amount of money private banks spend on compliance is increasing, accounting for 25% of US bank costs, says Mark Wales, vice-president of Capgemini. The figure for Asian banks is similar, he adds.

The survey finds wealthy Asians prefer to work with one wealth management firm as opposed to several, although there is rising interest in dealing with multiple professionals in a bank as they seek to have a better understanding of financial markets and how to best preserve their wealth.

RBC and Capgemini surveyed 4,400 global HNWIs, including 1,387 in Asia. The survey identifies HNWIs as having $1 million or more in investable assets, excluding primary residences, collectables, consumables and consumer durables.