Crisis, what crisis? Shrugging off a sluggish eurozone and weak global recovery, the Asia-Pacific region is forecast to eclipse North America as the world’s biggest source of wealth in just four years, aided by the newly rich of China and India.
The prediction came in the Boston Consulting Group’s (BCG) latest annual study of the world’s wealth management industry, which revealed 2012 as a bumper year for private wealth even amid a sluggish world economy.
While the “old money” of North America and Europe were the wealthiest regions of 2012, accounting for $43.3 trillion and $35.8 trillion of private wealth respectively, the Asia-Pacific region (excluding Japan) saw the biggest rise, climbing 13.8 percent to $28 trillion.
The total is expected to reach $48 trillion by the end of 2017, driven largely by new wealth creation. Japanese private wealth is expected to see a more modest rise, up from $17.2 trillion to $18.2 trillion, although last year’s 2.4 percent rise was still the nation’s strongest since 2007, helped by “the election of a new Japanese [prime minister] apparently dedicated to fighting deflation”.
According to BCG, the wealth expansion was driven by the strong rebound in equity markets particularly in the second half of 2012, with the Nikkei Stock Average gaining 22.9 percent, the Euro Stoxx 50 up 13.8 percent and the S&P 500 rising 13.4 percent.
The proportion of assets held in equities reached 33.9 percent in 2012, although still below the level prior to the global financial crisis. Total equities holdings of $45.9 trillion compared with $27.6 trillion held in bonds and $60.8 trillion in cash and deposits.
“New-world regions will account for nearly 70 percent of the growth in global private wealth over the next five years,” the consulting firm said, aided by high savings rates and continued strong growth in gross domestic product in developing economies.
Who wants to be a millionaire?
Japan and China may lead the region in the number of millionaire households, but Hong Kong and Singapore are the best places in Asia to find them. According to BCG, 9.4 percent of Hong Kong households and 8.2 percent of those in Singapore had private wealth exceeding $1 million, excluding the value of their residences.
Similarly, while the U.S. had the world’s largest number of billionaires, Asia’s highest density of billionaire households was in Hong Kong, with 15.1 per million.
The data supported another study by consultants Capgemini and RBC Wealth Management, which found that Japan made up more than half the region’s millionaires in 2011.
In the Asia-Pacific region, Japan led the way in second place behind the United States with 1.46 million wealthy households, compared to China’s 1.3 million. Further down the list, Taiwan was eighth with 312,000, followed by Hong Kong (11th), Australia (14th) and India (15th).
China is expected to surpass Japan in the number of millionaire households in 2013, a forecast seized upon by the China Daily, which noted the potential for wealth management firms in the Chinese mainland.
Yet BCG noted that the share of Japan’s total wealth held by households with less than $1 million in private wealth was 78 percent in 2012 – “a high level compared with all other regions.” Contrasting with Japan’s relatively even income distribution, the growing gap between rich and poor in China has been seen as a source of growing social unrest, as noted recently in The Diplomat.
The good news for financial services firms is that the rich are expected to become even richer. Global wealth among households with $5 million to $100 million in assets is expected to expand by 8 percent a year over the next five years, while ultra-high-net worth households with assets exceeding $100 million are expected to enjoy 9.2 percent growth a year.
The outlook for those slightly less wealthy is not quite as bright, according to BCG: “All segments below the $5 million mark will grow at significantly lower rates, and all segments in the old world will grow at lower rates than those in the new world”.
Commenting on the increase in the number of Australian millionaires to 178,000, BRW’s Andrew Heathcote said, “Becoming a millionaire was once the epitome of success, but these days many people can lay claim to the title.”
Nevertheless, for those seeking to join them, the message from BCG’s report was clear: Go East to seek your fortune, not West.