The rich get richer, once more
If you, like many, are struggling to meet your mortgage payments, it may come as little joy to learn from Merrill Lynch Global Wealth Management and Capgemini that the world's high-net-worth individuals have managed to regain their riches despite weaknesses in the global economy.
Such is the conclusion of those firms' 14th annual world wealth report, a bible for journalists who need to trot out figures about how rich the rich are these days, and just plain good reading on how the other half lives.
Each year, the report also prompts journalists to come up with as many different ways as they can to avoid writing the phrase high-net-worth individuals -- or worse, the acronym HNWI, which just doesn't roll off the tongue and reads like a type attack of capital letters. One could write: flush, flash, loaded, moneyed, plush, prosperous, rolling in it, well-heeled, well-off, well-to-do or any number of other phrases. But for simplicity, as much as possible we've stuck to plain old 'wealthy' and 'rich'.
This year's report, which was released yesterday, shows that the world's population of rich people -- and by that we mean those with investable assets of $1 million or more, excluding their primary residence and collectibles -- returned to 10 million in 2009.
Moreover, their aggregate wealth also increased, posting a gain of 18.9% to a hard-to-imagine $39 trillion. And those who fall into the ultra-rich category -- defined as those with investable assets of $30 million or more, excluding their primary residences and collectibles -- saw their overall wealth rise by 21.5% in 2009.
Put simply, these figures show that the wealthy have nearly recouped all of their 2008 losses and returned to wealth levels last seen in 2007.
"While in 2008 global HNWI wealth showed an unprecedented decline, a year later we are already seeing distinct signs of recovery, and in some areas a complete return to pre-crisis levels of wealth and growth," says Bertrand Lavayssière, managing director of global financial services at consulting firm Capgemini. "Much of this rebound has been, and will continue to be, driven by emerging markets -- especially India and China, as well as Brazil."
More than half the world's wealthy (53.5%) is concentrated in the US, Japan and Germany, about the same as last year. North America remains the single largest home to the rich, with its 3.1 million HNWIs accounting for 31% of the global wealthy. Asia-Pacific, however, was the only region in which both macroeconomic and market drivers of wealth expanded significantly in 2009.
Asia-Pacific leads the way
The report showed that last year there were 3 million high-net-worth individuals with a combined wealth of $9.7 trillion in Asia, surpassing the combined wealth of their peer group in Europe ($9.5 trillion) for the very first time.
Among Asia-Pacific markets, Hong Kong and India led the pack, rebounding from severe declines in 2008 amid an outsized resurgence in their stock markets. In Hong Kong, market capitalisation increased 74% in 2009 after falling by around half the previous year. Market capitalisation is a powerful driver of wealth in Hong Kong, due to its very high market-cap-to-nominal-GDP ratio of almost 11 times, compared with the global average of 0.8 times. That ratio makes Hong Kong particularly vulnerable to losses in wealth when the market declines, as it did in 2008, but also produces outsized gains in wealth when stock prices rise.
Hong Kong also has a very large proportion of those in the $1 million to $5 million net-worth range, so many were relegated to the 'mass affluent' bracket during the losses of 2008 -- and many were just as quickly promoted back to HNWI status when asset prices rose in 2009.
As a result of this dynamic -- and given the low base at which the rich population stood after the 2008 losses -- Hong Kong's rich population rose 104% in 2009. This was by far the strongest rebound in the world but since it followed a 61% decline in 2008, the number of high-net-worth individuals at the end of 2009 was still only 79% of that at the end of 2007.
"The Asian story continues to lead the global economic recovery and this has benefited many of the markets in the region in terms of both growth and wealth creation," says Francis Liu, market managing director for Greater China at Merrill Lynch GWM. "In the case of Hong Kong, the strong rebound in HNWI numbers is highly correlated to the strong recovery in stock-market prices and property prices."
Elsewhere in the Asia-Pacific region, the trend was similar. In fact, the region was home to eight of the world's 10 fastest-growing wealthy populations. In India, the rich population grew 51% in 2009, while the number in China rose 31% to 477,000. Stock market capitalisation in China grew more than 100% in 2009 as the economy grew at a rapid 8.7%.
In terms of asset allocation, the wealthy in the Asia-Pacific region (excluding Japan) continued to have the highest allocation to real-estate investment and to residential property in particular. As of the end of 2009, 28% of the assets held by the region's wealthy was in real estate. The region also had the lowest allocation to fixed income, with only 16% of assets invested in this class compared with the global average of 31%.