Driven by market capitalization growth in emerging economies, the wealth of the world’s high net worth individuals (HNWIs) increased 9.4% to $40.7 trillion in 2007, according to the 12th annual World Wealth Report from Merrill Lynch and Capgemini.
The number of HNWIs in the world increased 6% in 2007 to 10.1 million, the number of ultra high net worth individuals (Ultra-HNWIs) increased 8.8%, and for the first time in the average assets held by HNWIs exceeded $4 million (since the Report has been published).
HNWIs are those with net assets of at least $1 million, excluding their primary residence and consumables; Ultra-HNWIs – who number some 103,000 -?are those with net assets of at least $30 million, excluding their primary residence and consumables. The highest proportion of Ultra-HNWIs to HNWIs is in Latin America:
The global economy grew 5.1% 2007, down slightly from the 5.3% global growth in 2006, according to the Report, which forecasts that global HNWI wealth will grow to $59.1 trillion by 2012, advancing at a rate of 7.7% per year.
Below, more findings from the World Wealth Report.
Emerging Economies and BRIC Nations Lead the Pack
Impressive growth of emerging economies was boosted largely by thriving export sectors and heightened domestic demand. The largest regional growth of the HNWI population occurred in the Middle East, Eastern Europe, and Latin America, with increases of 15.6%, 14.3%, and 12.2%, respectively; while the largest regional growth in wealth occurred in Latin America, the Middle East, and Africa:
The BRIC nations (Brazil, Russia, India and China) continued to play pivotal roles in the global economy in 2007, driven by impressive economic gains and robust market capitalization growth.
India led the world in HNWI population growth at 22.7%, driven by market capitalization growth of 118% and real GDP growth of 7.9%. Although India’s real GDP growth decelerated from 9.4% in 2006, current levels are considered more stable and sustainable.
China experienced the second largest expansion of their HNWI population, advancing 20.3% – an increase fueled by market capitalization growth of 291% and real GDP growth of 11.4%.
Brazil enjoyed the third-highest HNWI growth rate in 2007, with a 19.1% increase, spurred by a wave of robust market capitalization growth of 93% and real GDP growth of 5.1%.
Russia was home to one of the world’s 10 fastest-growing HNWI populations, despite growth deceleration from 15.5% in 2006 to 14.4% in 2007. Solid gains of 37.6% in market capitalization and 7.4% in real GDP represented the growing international interest in the country as a global player, suggesting that the ongoing development of Russia’s external relationships will likely improve the economy’s fundamentals.
Shift to Safer, More Familiar Investments
The diverging macroeconomic environments at either end of 2007 helped define HNWIs’ asset allocation strategies. Building on the optimism of 2006, the early months of 2007 showed HNWIs betting heavily on riskier asset classes. But as the year wore on, and financial market turmoil and economic uncertainty intensified, HNWIs began to retrench, shifting their investments to safer, less volatile asset classes.
The Report found that cash/deposits and fixed income securities accounted for 44% of HNWI financial assets, up 9 percentage points from 2006.
Fixed income securities saw a 6 percentage point increase in asset allocation, accounting for 27% of holdings, up from 21% in 2006.
Globally, HNWIs continued to decrease their holdings in North America and showed greater interest in domestic market investments, preferring more familiar ground amid heightened levels of economic uncertainty.
Green Investing Gains Traction
Due to overall heightened interest in the environment, green investing has become widely popular across the globe in recent years, offering investors lucrative returns and an opportunity to become actively involved in social responsibility.
The total investment in clean technology, for example, increased to US$117 billion in 2007, up 41% from 2005, with notable strength in wind and solar segments.
The Middle East and Europe were the most environmentally attuned HNWI and Ultra-HNWI populations, with participation ranging from around 17% to 21% in 2007.
In comparison, only 5% of HNWIs and 7% of Ultra-HNWIs in North America allocated part of their portfolio holdings to green investing.
North America was also the only region in which social responsibility was the primary driver of HNWIs’ green investing. Among HNWIs worldwide, approximately half pointed to financial returns as the primary reason for their allocation to green investing.