For years, the emerging entrepreneurial class of Asia has led the charge when it came to wealth creation. Their European counterparts, meanwhile, were long seen as conservative stewards of old money they had inherited and were mostly happy to maintain the status quo.
Not any more. Last year, the trend was broken as Europe outpaced “lacklustre” Asia Pacific in terms of the population of high-net-worth individuals (HNWIs) and wealth growth.
While some key markets performed well, the biggest markets of Japan and China weighed heavily in the region’s slowdown in 2021.
According to consultancy Capgemini’s World Wealth Report 2022 released on June 14, the pockets of the rich in China last year were hurt by “challenges” in the real estate sector, weak consumer confidence and the crackdown on the once-bustling tech and Internet sectors.
Hong Kong HNWIs, forced to put up with the political and business stress of the past few years, suffered a 2% drop in their wealth too.
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In Japan, HNWIs, presumably with a significant portion of their net worth tied to the markets, had to put up with a “roller coaster” Nikkei 225.
In contrast, HNWIs in Europe enjoyed a continuous lift in global demand in the luxury goods sector. Those holding eurozone utilities and tech stocks did well in 2021 too. Overall, the number of HNWIs in Europe increased by 6.7% between 2020 and 2021, outpacing the corresponding 4.2% growth in Asia Pacific.
In line with a rebounding economy of 7.2% in 2021, Singapore’s HNWI population — defined as those with a net worth of at least US$1 million ($1.38 million) — was up 5.4%.
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Total wealth, meanwhile, was up 4.2% y-o-y, according to Capgemini.
Worldwide, the total HNWI population grew 7.8% and their wealth grew 8% y-o-y in 2021, owing to recovering economies being boosted by the stock market.
Globally, North America remained the top spot for wealth and the HNWI population in 2021.
Together with the next three markets — Japan, Germany and China respectively — they comprise 63.6% of the global HNWI population, an increase of 0.7% from 2020.
“Ultra-HNWIs”, or those with wealth above US$30 million, led global wealth and population growth across segments at 9.6% and 8.1% respectively.
Meanwhile, the population and wealth of “mid-tier millionaires” (US$5 million–US$30 million) increased by 8.5% and 8.4% respectively.
Finally, the population and wealth of “millionaires next door” (US$1 million–US$5 million) grew the slowest at 7.7% and 7.8% respectively.
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For its report, Capgemini surveyed 2,973 HNWIs across 24 major wealth markets in North America, Latin America, Europe and Asia Pacific.
HNWIs tend to have various options of where they can park their money. Yet, according to Capgemini, the pandemic had minimal impact on their preferences, as asset class allocation in 2021 remains largely the same.
HNWIs in Japan recorded the highest allocation to equities compared with other regions at 36%, as investors expected the new government to introduce policies to normalise the stricken Japanese economy.
Meanwhile, US HNWIs allocated 32% of their total investment to equities, compared with a 29% global average.
2022 scramble seen
However, this year may turn out very differently. The wealth gains of 2021 are likely to have receded because of the ongoing market volatility.
Capgemini says, “While 2021 was a strong growth year, 2022 is already turning out to be significantly different. High inflation since the start of 2022 and talk about interest rate hikes from central banks have spurred stock market corrections that are accelerating. As a result, as at end April 2022, our estimates indicate that global HNWI wealth had declined by some 4% from Dec 31, 2021.”
Due to high exposure to equities, HNWI wealth in North America is expected to be most impacted, adds Capgemini.
This is followed by Europe, which must also cope with the ongoing geopolitical crises from Russia and Ukraine.
Meanwhile, the wealth management sector is undergoing a diversification of investment options, says Capgemini.
These range from sustainable investing (SI) to the growing prevalence of digital assets. According to the findings, 71% of HNWIs globally have invested in digital assets while 91% of HNWIs younger than 40 have investments in digital assets. They say cryptocurrencies are their favourite digital asset investment.
Meanwhile, 55% of HNWIs feel investing in causes with a positive ESG impact is critical, and 64% of HNWIs ask for ESG scores to learn about a fund’s societal impact.
However, 40% of wealth managers find it challenging to showcase an ESG impact.
The influx of new investment avenues such as SI and digital assets is having a crucial impact on the wealth management industry, says Nilesh Vaidya, global industry head of retail banking and wealth management at Capgemini. “Wealth management firms must prioritise providing timely education around this trend to retain their customers.”
Capgemini’s accompanying 2022 Wealth Manager Survey covers more than 350 responses across seven markets and gathers wealth managers’ thoughts on their firms’ strategy priorities and their satisfaction with the support provided.
Interviews and surveys of more than 70 wealth management executives were conducted across 10 markets, with representation from pure wealth management firms, universal banks, independent broker/dealer firms and family offices.
Inclusive wealth management
Increasingly, the HNWI population counts more women, LGBTQ+ individuals, millennials and Gen Z’s among its ranks.
These emerging client segments each have their own values, preferences and requirements, which many wealth management firms are currently unequipped to provide, says Capgemini.
As a result, many of these HNWIs pivot to more nimble competitors or smaller family offices, they add.
For example, women across all wealth brackets are set to inherit 70% of global wealth over the next two generations.
They are seeking firms that not only provide fee transparency and data security, but also education on how to grow this wealth, says Capgemini.
LGBTQ+ individuals and families often face financial and legal complexities during pivotal events like marriage, domestic partnerships and retirement, says Capgemini. “An inclusive approach encompasses the entire financial lives of LGBTQ+ HNWIs, from investments to tax strategies, estate planning to risk management.”
Meanwhile, 39% of millennial HNWIs had switched providers in the past year due to a lack of transparency. They are frequently seeking new wealth managers as they demand greater digital interaction, education and convenience.
Singapore the fifth-costliest Asian city
Asia continues to be the most expensive region in the world, with four cities in the top five of Julius Baer’s Global Wealth and Lifestyle Report 2022 rankings, released on June 15.
Shanghai retained its pole position, while Taipei stood at third, Hong Kong at fourth and Singapore at fifth.
Following a year of extreme fluctuations in price and availability, Julius Baer notes a rebound in the price of business class flights, hotel suites and fine dining.
“This likely reflects pent-up demand from consumers wanting to enjoy their newly rediscovered freedom. That said, although hotel room prices have skyrocketed in London, Dubai, and Miami, they have declined sharply in Hong Kong, where strict pandemic restrictions remain,” says the private bank.
The enduring effects of the pandemic, combined with a challenging set of macroeconomic conditions and supply chain disruptions, have caused price rises for 75% of the goods and 63% of the services in the Julius Baer Lifestyle Index.
Comparing prices globally, Singapore is ranked the first globally in the costs of cars, the third in “degustation dinners” and fifth in whisky prices.
Meanwhile, Hong Kong is ranked second globally in the costs of residential property, third for lawyers, fourth for whisky and fifth for cars and business flights.
The index is based on a basket of 12 consumer goods and eight services that represent discretionary purchases by HNWIs globally.
Mark Matthews, head of research, Asia Pacific at Julius Baer, says, “With the index showing that prices of goods have increased 15% and services 22% on average in the last year, the purchasing power of wealthy individuals has been impacted.”
He adds, “Against this backdrop, it is important to couple these insights with a good wealth management strategy to stem this erosion, to preserve and even grow wealth under the current conditions.”
That said, HNWIs in Asia have a rosier business and professional outlook, says Julius Baer. “Of all regions, they are the most confident in both their professional and financial situation.”
Asian HNWIs are also committed to self-improvement, says Julius Baer. In Asia, health (70%), education (58%) and personal fitness (57%) are the main areas they intend to spend on over the coming year.
Julius Baer speculates that Mumbai “must surely become more expensive at some point” in the next two decades. “It is the commercial capital of the world’s second-most populous country and its sixth-biggest economy. It feels inevitable, and India has no challenger cities in terms of importance. But how long will it take?”
On a smaller scale, Jakarta could also have economic gravity on its side, adds Julius Baer. “Unless, of course, the Indonesian government makes good on its promise to shift the capital to the island of Borneo in one of the country’s biggest-ever infrastructure projects.”
Photos: Bloomberg
Infographics: Capgemini Financial Analysis, Julius Baer
