A new report said the global personal wealth of people with $1 million and more to invest fell in 2011 for the second time in four years, reflecting the euro zone crisis and economic sluggishness in developed markets. But several emerging markets also felt pain, as the number of millionaires in India and Hong Kong fell by almost one-fifth.
And with Europe’s debt crisis still in full throttle, the outlook for wealth creation in 2012 remains dim, according to Capgemini and RBC Wealth Management’s latest world wealth report.
The world’s population of millionaires grew by 0.8 per cent to a record 11 million, according to the report, yet their collective wealth fell by 1.7 per cent to $42 trillion. Every region except the Middle East saw declines in wealth. It was the first global drop in millionaire wealth since the 2008 financial crisis, when the ranks of the wealthy fell by 15 per cent and their wealth contracted by 20 per cent.
Families with $30 million or more to invest saw their combined wealth fall 4.9 per cent and their ranks shrink by 2.5 per cent to 100,000 people. This decrease reflects their holdings in higher-risk and less liquid investments like hedge funds, private equity and real estate.
Sinking stocks, slowing exports and slumping currencies hit some countries especially hard. India saw its ranks of millionaires fall by 27,500, or 18 per cent to 125,500 last year, reflecting a one-third decline in stock market values and a weakening rupee. Hong Kong’s millionaire population fell by 17.4 per cent as euro zone woes weighed on its own growth.
Last year was the first time India’s wealthy declined in population since 2008, when their ranks fell by 32 per cent amid falling stock prices and lower global demand for goods and services, according to Capgemini.
“It was a challenging environment for our clients,” George Lewis, Global Head of Wealth Management at Royal Bank of Canada, said in an interview.
The Toronto banking giant, one of the world’s 10 largest wealth managers, took over sponsorship of the widely watched report last month from Bank of America’s US brokerage unit Merrill Lynch.
Lewis noted the number of high net worth individuals rose even as overall wealth decreased. “It at least suggests there continues to be upward mobility and the ability to generate wealth around the world,” he said.
China’s population of those with at least $1 million to invest rose by 5.2 per cent to 562,400 last year. Japan’s millionaires increased by 4.8 per cent.
Last year was tough on investors, who were buffeted by a tsunami in Japan, a downgrade of US sovereign debt, political unrest in the Middle East and North Africa, and waning confidence in governments struggling to stimulate growth. And weakness in developed markets slowed growth in export economies in Asia and Latin America.
Poland and Singapore, though far apart on the globe, both suffered from the euro zone crisis. Poland, as foreign investment fell, saw its number of millionaires fall 7.8 per cent while those in Singapore dropped 7.3 per cent, reflecting lower demand for exports.
In 2009 and 2010, people worldwide with at least $1 million to invest saw their combined wealth surge by double digits.
Capgemini’s report tracks financial assets but excludes an individual’s primary residence, collectibles, consumables and consumer durables.
Millionaire wealth in the United States and Canada in 2011 fell 2.3 per cent to $11.4 trillion – still the wealthiest region by this measure – though it had 1.1 per cent fewer millionaires, slipping by about 39,000 to a total of 3.35 million.
Strong economic growth in China and other markets increased the ranks of millionaires across the Asia-Pacific region by 1.6 per cent to a total of 3.37 million, as Asia vaulted past North America as home to the most millionaires.
Even so, overall wealth in the Asia-Pacific region slipped 1.1 per cent to $10.7 trillion, as key markets such as Hong Kong and India lost ground.
“The economic slowdown, some debt challenges and indices that dropped 30 per cent in 2011 were major factors that drove the decline in India,” William Sullivan, Global Head of Market Intelligence at Capgemini, said at a New York press briefing Tuesday.
On the other hand, he said, India’s wealth has the potential for rebounding quickly, just as it did in 2009. “We are expecting that if not in 2012, that certainly by 2013 India combined with China will continue to drive that strong growth from the Asia-Pacific region,” he said.
Surprisingly, Europe increased its millionaire ranks by 1.1 per cent last year, for a total of 3.2 million, while combined wealth fell 1.1 per cent to $10.1 trillion. The report also said Europeans invest more of their wealth overseas, reducing their exposure to domestic markets.
The outlier in terms of wealth was the Middle East, where civil unrest that shook up equity markets worldwide led to surging oil prices and 3.1 per cent economic growth. The region’s millionaire ranks rose 2.7 per cent to 450,000, and that group increased its wealth by 0.7 per cent to $1.7 trillion.
The report cautioned that 2012 so far has remained challenging for investors. Concerns about China’s growth rate, signs of further contraction in mature markets and the uncertainty stemming from elections and financial policy decisions also may weigh on 2012 performance, he said.
“Repeated flare-ups are likely to keep markets on edge,” said Jean Lassignardie, a vice president at Capgemini Global Financial Services.
The report, now in its 16th year, does not delve into asset-allocation decisions made by wealthy investors as it has in the past, because that data was based on interviews with Merrill Lynch advisers.
Merrill Lynch, the original bank sponsor of the survey, is in talks to sell its non-US wealth management business with Geneva’s Julius Baer Gruppe AG, people familiar with the situation told Reuters Tuesday.