The World's Rich Part with $7.9 Trillion in Assets

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North America (mainly the US) and Asia-Pacific (mainly China) are expected to lead the growth in HNWI assets and population over the next five years, backed by expectations of higher US consumer spending and an increased autonomy of the consumer-led mainland economy. Asia-Pacific is expected to overtake North America in terms of HNWI assets by 2013, thanks in large part to China's relatively robust growth.

With regard to the quality of the data, Liu concedes that the HNWI asset and population figures used in the World Wealth report are likely "conservative" and "understated", but when used consistently over the past 13 years, still paint a pretty good picture in terms of growth trends.

Wealth trends in Asia

Looking specifically at Asia, the region's HNWI assets fell 22.3% to $8.3 trillion in 2008 from $10.7 trillion in 2007. Its HNWI population fell 14.2% to 2.4 million from 2.8 million.

Still highly dependent on exports, Asia was also severely affected by the crisis as global demand for products dried up, particularly towards the end of 2008.

In terms of the stock market, those with the largest gains in the region in 2007 led the losses in 2008. China's market capitalisation was down 60% in 2008 after a surge of 291% in 2007, while India's was down 64% in 2008 after jumping 118% in 2007.

Merrill Lynch and Capgemini declined to reveal the complete details relevant to Asia, opting to reveal the full report on the region's wealthy individuals separately in October.

However, snippets of information reveal that China -- with its 364,000 in HNWIs -- has overtaken the United Kingdom as the fourth highest ranking market worldwide in terms of HNWI population. This marks another step up for China, which overtook France in the rankings in 2007. Japan, with a HNWI population of 1.366 million, is still firmly second to the US.

Hong Kong and India suffered the most in terms of the number of people who can no longer call themselves US dollar millionaires. The HNWI population fell by a whopping 61.3% in Hong Kong to 37,000 in 2008 from 96,000 in 2007, and by 31.6% in India to 84,000 in 2008 from 123,000 in 2007.

Hong Kong's poor showing in this year's report can be explained by the 50% fall in stock market capitalisation and the 12.6% average decline in property prices in 2008. Add to that the fact that the majority of Hong Kong's HNWIs just barely made it to the list to begin with, as many of them fell in the $1 million to $5 million range. Being borderline HNWIs meant that last year's stock market losses were enough to change their overall fortunes.

Like Liu, Stephen Corry, Asia-Pacific investment strategist at Merrill Lynch Global management, also prefers to look at the bright side. He notes that investor sentiment has already improved, with the Hang Seng Index up 27% so far this year and property prices recovering somewhat thanks to low interest rates and higher liquidity. Another thing in Hong Kong's favour is its role as a conduit for investors interested in gaining exposure to the China market.

India also suffered from a hefty drop in stock market capitalisation (it was down 64.1% in 2008) and a steep decline in demand for its goods and services.

Japan, which accounts for more than 50% of the HNWI population in Asia-Pacific, suffered a relatively mild 9.9% decline in HNWI population. Japan's relative resilience has to do with the fact that the rich list has grown that much over the past two years and the individual asset levels are higher compared with other markets, allowing the Japanese to survive stock market losses better than most in the region.

In terms of asset allocation in Asia and worldwide, wealthy individuals took cover in fixed-income and cash-based investments, making up 50% of overall portfolios of HNWIs in 2008. HNWIs also retreated to home markets, going back to investments they were familiar with and had more confidence in. They also returned to real estate, with this asset class making up 18% of overall portfolios of HNWIs in 2008.

Impact on wealth management industry

The global financial crisis has most certainly taken its toll on the wealth management industry. It has shaken the trust and confidence that HNWIs previously placed on markets, regulators, financial institutions and even the principle of portfolio management, according to Capgemini.

"Mainly due to the loss of trust and confidence, more than 25% of HNW clients surveyed withdrew their assets from a wealth management firm or completely switched over to another firm in 2008," says Arvind Sundaresan, head of sales for Asia-Pacific at Capgemini Hong Kong.

Sundaresan says the switching trend was more prevalent among individuals below the age of 45 as well as those who earned their wealth rather than inherited it.

To prevent client attrition and strengthen retention, Capgemini says financial advisors and wealth management firms must pursue more open and transparent client communications, provide more risk-related information, and improve client services.

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