S'pore wealth chart shrinks by 22%

Business Times - 26 Jun 2009

Globally, high net worth individuals' wealth falls 19.5% to US$32.8t in 2008

By OH BOON PING

(SINGAPORE) The number of wealthy Singaporean individuals fell 21.6 per cent to 61,000, largely due to losses in the equity and property markets, according to Merrill Lynch and Capgemini's latest wealth report.

Merrill Lynch head of advisory for South Asia Kong Eng Huat reckons that the combined fortunes of the well-heeled in Singapore could have fallen by about 20 per cent last year from US$379 billion previously - in line with the 22.3 per cent contraction seen in the region.

He said that 2008 was an 'unprecedented year because of extraordinary volatility and distress in the financial markets, and this impacted the size of the wealth of high net worth individuals (HNWIs)'.

Globally, the combined wealth of the world's HNWIs - defined as those with investible assets of US$1 million - fell 19.5 per cent to US$32.8 trillion in 2008, but should recover to US$48.5 trillion in five years. The ultra-HNWIs - those with investible assets of more than US$30 million - suffered an even sharper drop of 24.6 per cent in combined fortunes as 'they were more aggressive and highly leveraged'.

The world's real GDP had expanded only 2 per cent in 2008, against 3.9 per cent in 2007.

However, Bhalaji Rhaghavan, regional vice-president of banking solutions at Capgemini, sees signs of economic recovery and that HNWI wealth should 'resume an upward trend with the Asia-Pacific region leading the growth'.

Accordingly, the report projects the Asia-Pacific wealth market to grow at a 12.8 per cent annual growth over the next five years to US$13.4 trillion in 2013 - faster than the 8.1 per cent forecast globally.

In terms of asset allocation, the wealthy have generally cut back on their exposure to equities and alternative assets. Globally, the wealthy reduced their equity weighting from 33 per cent to 25 per cent. Cash and fixed income have a combined 50 per cent - up from 44 per cent a year ago.

Also, HNWIs allocated more of their financial assets to real-estate holdings, which rose to 18 per cent of the total HNWI portfolio - an increase of four percentage points from 2007.

'Last year was about preservation, not appreciation,' said Merrill Lynch Global Wealth Management president Dan Sontag. 'With no safe havens, HNWIs ended up with significant amounts of cash in their portfolios. As markets recover, they will have the flexibility to readjust their strategies and reinvest in new developing opportunities along the way.'

The report also carried a section on 'passion investments' such as art, luxury cars, and wellness. Globally, luxury collectibles accounted for 27 per cent of passion investments and fine art 25 per cent.

Interestingly, the affluent increased their allocations towards jewellery to 22 per cent, compared with 18 per cent two years ago.

In contrast, they scaled back on their allocations in miscellaneous investments of passions - club memberships, travel, guns and musical instruments - to 7 per cent from 16 per cent in 2006.

Meanwhile, the other private banks remain cautiously optimistic on the continued growth of the Asian wealth market despite the turmoil seen in the regional capital markets.

Said Raj Sriram, Singapore head of private banking at RBS Coutts: 'In the medium to long term, we believe the region will continue to be the fastest growing wealth management market in the world. Not all markets have been impacted by the same magnitude.'

A UBS spokesman said that 'the wealth management market in Asia Pacific has expanded substantially over the years and Asia Pacific has been the fastest growing region. At UBS, we are of the view that the wealth management assets in Asia Pacific will continue to grow faster than the global average'.

Citi Private Bank's Akbar Shah said that Asia is still one of the most dynamic regions in the world. 'The recession will not last forever; real economic growth will return and so will the business opportunities; our clients from Brazil or the Middle East will want to invest in China, India, or other Asian markets.'