Julius Baer defends “optimistic” wealth forecast

Swiss private bank Julius Baer was accused of being overly optimistic yesterday as it delivered its forecast for growth in Asia’s high-net-worth community.

The firm, which itself has been building significant scale in the region via acquisition and strategic alliances, expects the community to grow to almost three million with combined wealth of $16.7 trillion by 2015.

The projection formed part of its second annual wealth report. In its first, announced in August last year, the bank forecast there would be 2.82 million HNWIs by 2015 with wealth of $15.8 trillion.

But Julius Baer says it has reassessed its original forecasts on account of extreme volatility in the global economy. Nevertheless, it notes that its baseline case today is for 2.67 million HNWIs by 2015, a compound annual growth rate of 30% from estimated 2010 levels. It classes HNWIs as those with investible assets of at least $1 million, excluding primary residence.

This compares with the Asia-Pacific Wealth Report 2012 prepared by RBC Wealth Management and Capgemini, which puts Asia’s HNWI population at 3.4 million in 2011 with combined wealth of $10.7 trillion.

But that report indicated a sharp slowdown in the growth rate of the wealthy community in Asia-Pacific, with it expanding just 1.6% in 2010-11, compared with 9.7% in 2009-10.

Similarly, Chinese magazine Hurun recently reported that the number of billionaires in China has decreased by 20 to 251 individuals, while nearly 50% of the 1,000 richest Chinese people have seen their wealth shrink, some by as much as 50%.

During its press conference in Hong Kong yesterday, Julius Baer was challenged by assembled media over whether it was being a little too optimistic in its HNWI growth projections.

“At the very minimum, we are very comfortable with the baseline scenario, and we see that for the upscale [forecasts] as well,” replied Stefan Hofer, the firm’s emerging market strategist who recently relocated to Hong Kong.

“If we have a very controlled moderate slowdown now followed by a fairly robust V-shape recovery, I don’t necessarily think that this will be too optimistic.”

Its argument is that Asia has remained resilient in the face of a global economic slowdown thanks to strong fiscal fundamentals, improved economic policymaking and greater diversification of trade links. Its report concludes the downside risk to Asia’s HNWIs is small.

Julius Baer's upside predictions find China being home to 1.46 million HNWIs whose stock of wealth could reach $9.3 trillion, while in HNWI population growth terms Indonesia’s 25% CAGR is forecast to be the highest across Asia.

Contrastingly, in its downside scenario, the overall number of Asia HNWIs could fall 6% lower than the forecast it made in 2011 to 2.65 million, with total assets down to $14.7 trillion.

In China, the bank sees greater wealth creation opportunities as the central government strives to rebalance growth among its coastal and inland provinces. The nation’s central and western regions saw per capita GDP quadruple to Rmb20,000 between 2002 and 2012.

This will be supported by China’s recently announced expansion programme that will see the construction of 55 infrastructure projects ranging from subway lines to highways with an estimated price tag of Rmb1 trillion.

Meanwhile for India, the report noted that in the past decade more than 150 million males had shifted from agriculture-based employment to more value-added manufacturing and services industries, fuelling domestic growth and wealth creation.

For Indonesia, wealth creation could be fuelled by its favourable business environment. Quoting the World Bank’s business operating environment metrics between 2007 and 2012, the country is recognised for ease of starting a business and access to credit, even as its reputation for investor protection has declined.

Added to this is Asia’s relative insulation from the eurozone, with just 13% of developing Asia’s exports destined for Europe, equating to less than 4% of the region’s GDP, finds Julius Baer.

“The good message here is that looking back at the past 10 years, emerging markets and especially Asia have been able to diversify the destination of their exports,” says Hofer. “So Asia is exporting more amongst itself and relying less and less on final demand in Europe.”

Separately, the rise in the cost for a luxury lifestyle in Asia had slowed to 8.8% by April this year, from nearly 12% last year, according to the Julius Baer lifestyle index.

This tracks a basket of 20 luxury goods and services, including a gold Rolex watch, a business-class return flight between London and New York and a face-lift, amongst others.

The figure “shows clearly that the cost of living in luxury in Asia continues to substantially outpace conventional Consumer Price Index measures, which stood at approximately 6% for the same time period”, the report finds.