High net worth individuals attracted by Asia pacific growth prospects
High net worth individuals (HNWI) are building up their exposure to Asia and cutting back their North American weightings, according to the latest research by Capgemini and Merrill Lynch.
Their 10th annual World Wealth Report suggested the number of HNWI globally grew by 6.5% to 8.7 million in 2005 with their combined wealth going up by 8.5% to $33.3 trillion.
While North America retained its position as the most popular region for investment, the report found that investors' interest in the region has decreased.
Having been negative on the dollar in 2004, HNWI decreased their North American investments and, despite the currency appreciating last year, continued to trim allocations on the back of poor performance. In 2005, HNWI had 44% exposure to North America compared with 46% the year before.
The second most popular destination for HNWI investments last year was the Asia Pacific region, which accounted for 23% of total assets and pushed Europe into third place at 22%.
That represented a 2% rise in Asia Pacific exposure over 2004, while exposure to Europe remained level.
Nick Tucker, head of Merrill Lynch Global Private Clients in UK and Ireland said: "A number of emerging economies with large growth prospects, combined with strong performance in the Asia Pacific region's more mature markets, is likely to keep international interest focused on this part of the world for some time."
"Strong performance by Europe's mature capital markets coupled with strong advances in its emerging markets, the MSCI Emerging Markets Eastern Europe index returned 46.1% in 2005, persuaded local HNWI to increase their allocation to domestic markets to 48%, up from 40% in 2004."
Looking at investors within individual regions, the report found North American HNWI continued to hold the most unbalanced portfolios with 43% of their assets going to equities.
European HNWI replaced their Asia Pacific counterparts in having the most evenly distributed portfolios with equity allocations standing at 27% and 24% respectively.
"European allocations to alternative investments also increased, climbing from 18% of holdings in 2004 to 22% in 2005, and this helped European HNWI add balance to their portfolios," Tucker said.
Merrills and Capgemini noted the financial gains seen in 2005 by HNWI exceeded 2004's increase of 7.8% and 2003's gain of 7.7%.
Tucker added: "This upturn continues the wealth consolidation trend among the world's wealthiest individuals, that we have steadily reported over the last 10 years. These gains show that, while market returns and economic indicators signalled a deceleration was underway in many regions, HNWI were still able to find select pockets of high performance in 2005.
"One area where HNWI found significant opportunity was in the Asia Pacific region, where the twin drivers of market capitalisation and GDP continued to deliver high rates of growth.
"Latin America and the Middle East also exhibited strong growth, which benefited HNWI investing domestically and from other parts of the world."
In terms of wealth creation, the report points out regions that experienced strong GDP growth and higher than average market returns saw an increase in wealth creation.
"In 2005 interest rates remained relatively flat in most parts of the world. The US and Canada were the notable exceptions," Tucker said. "Geographic diversification continued as investors gained confidence in less familiar markets and considered a fundamental shift in portfolio con
HNWI cut US exposure 2% to 44% and increase Asian exposure 2% to 23%
Number of HNWI globally now stands at 8.7 million
US HNWI have far higher equity allocation than their peers in Asia or Europe
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