Knight Frank: Onwards and upwards

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A region-by-region analysis of wealth creation based on data and forecasts prepared exclusively for The Wealth Report.


It has now been six years since the initial signs of the financial crisis started to emerge, but the global economy is still feeling the effects. In 2012, economic growth slipped to its lowest level since 2009.


While the signs are that growth will pick up this year, many major economies are still performing well below trend, with some struggling to achieve any improvement in economic output at all. But despite this gloomy economic backdrop, there was still room for wealth creation in 2012.


The number of people with US$30m or more in net assets (referred to throughout this report as HNWIs) rose by 5% last year, or nearly 8,700, according to data prepared exclusively for The Wealth Report by Wealth-X, a wealth intelligence firm.


The combined wealth held by HNWIs also grew by 2%, or US$566bn, to just over US$26tr in 2012. Over the next 10 years, 95,000 people are forecast to break the US$30m wealth barrier – a cumulative 50% rise, which will take the total number of HNWIs across the globe to around 285,665.


Mykolas Rambus, CEO of Wealth-X, says: “There are still opportunities in many markets around the world, especially for those who can look beyond the difficulties in some developed economies, and take a more global outlook.”


However, he admits there are challenges. “Credit is still much more difficult to come by in the wake of the financial crisis. The capital provided by central bankers’ stimulus packages has largely failed to trickle down into the economy where entrepreneurs can take advantage of it. The venture capital world used to be ‘frothy’; that is no longer the case. Having said that, individuals are still growing their businesses, but the broader financial conditions are unlikely to change in the near future.”


Economic headwinds, as well as the volatility that characterised the performance of equity and commodity markets during the year, have had an impact. The total net worth of HNWIs in Asia, for example, slipped slightly from US$6.6tr to US$6.4tr in 2012, but their numbers still rose by 3% overall. “The uneven performance of real estate and equity markets across Asia has led to the decline in wealth,” Mr Rambus says.


Key Asian stock markets underperformed compared with wider world indices for much of 2012, although there was a rally towards the end of the year. The FTSE world composite index of shares climbed modestly, although it ended 2012 some way below the highs seen in 2007.


Mixed fortunes

China is grappling with what Bert Hofman, Chief East- Asia and Pacific Economist at the World Bank, calls a “double whammy” of weaker exports and sluggish domestic demand. However, it is still expected to continue outperforming its rivals, overtaking the US as the world’s largest economy by the end of this decade, based on figures from the Economist Intelligence Unit.


Likewise, wealth creation in China – and wider Asia – will continue, according to Wealth-X, with China’s ultra-wealthy population more than doubling by 2022. Indonesia is also expected to experience a relative boom over the next decade, albeit from a low base. HNWIs are tipped to climb by more than 400% to 5,161 by 2022, reflecting international confidence in the potential of the economy, as signalled by robust direct investment during the last year.

Top-10 global cities by HNWI population

    2012 2022 % change
1 NEW YORK 7,580 10,306 36%
2 LONDON 6,015 8,202 36%
3 TOKYO 5,440 6,763 24%
4 SAN FRANCISCO 4,590 6,665 45%
5 LOS ANGELES 4,520 6,075 34%
6 BEIJING 2,285 5,262 130%
7 MUMBAI 2,105 4,988 137%
8 HONG KONG 3,205 4,780 49%
9 SAO PAULO 1,880 4,566 143%
10 RIO DE JANEIRO 1,740 4,285 146%

Source: Wealth-X


Despite recent economic concerns, the number of HNWIs in India is expected to more than double over the next 10 years, rising by 137% in Mumbai alone. This will give India – along with China and Japan – the highest number of HNWIs in Asia by 2022.


Intriguingly, Wealth-X figures suggest that one of the most noticeable jumps in HNWI numbers will be in Myanmar, underlining the link between wealth creation and an open economy. There are currently fewer than 40 HNWIs in the country, Wealth-X estimates, but this is expected to rise more than seven-fold over the next decade in the wake of sweeping political change. The easing of sanctions and pledges of funding for development projects underlines the fact that progress is now being recognised internationally. “Foreign firms are establishing a presence in Myanmar and opportunities to develop infrastructure, energy, international banking, and education should enable private enterprises to work with the government to develop the country,” Mr Rambus says.


Across Asia, the number of HNWIs is set to rise by 88% over the next decade, the joint highest rate of growth in any world region, matched only by Latin America. By 2022, there will be more than 82,300 HNWIs in Asia, with a combined wealth of US$12.6tr, according to Wealth-X, making it the biggest hub for wealthy individuals outside North America.

Number of billionaires by region

  2011 2012 2022 Predicted growth 2012  to 2022
AFRICA 25 35 75 117%
ASIA 496 543 1191 119%
EUROPE 672 708 1115 57%
LATIN AMERICA 123 145 301 108%
MIDDLE EAST 128 140 203 45%
NORTH AMERICA 487 586 1146 96%
OCEANIA 36 41 45 10%
Grand Total 1967 2198 4076 85%

Source: Wealth-X
Cautious optimism
Mr Rambus says that the US will remain dominant in terms of numbers of HNWIs and billionaires over the next 10 years, despite growth in the East. “The industrial revolutions in the US and the UK acted as a base for the large concentration of wealth still evident in these areas,” he says. North America will still have some 30% of the world’s HNWIs in 2022, although this is down from the current 34%.
Within the US, the biggest rise in the concentration of HNWIs is expected to be outside New York, despite its status as the world’s pre-eminent global city (see p16). Wealth-X’s survey of HNWI populations in the world’s leading cities shows that Houston, San Francisco and Dallas will see the most significant rise in HNWIs in the US over the next 10 years. New York, however, will still boast the largest number of HNWIs of any city in the world in 2022.
Latin America is another growth story, Mr Rambus says. “There are huge opportunities in the region, thanks to the rise of the middle classes. The natural resources within the region are also a boost for wealth creation.”
The number of HNWIs in Brazil is expected to climb by nearly 140%. However, Venezuela is forecast to experience a drop over the next decade. “We see a diminishing story,” Mr Rambus says. “Unless there is political change, Venezuela will continue to face challenges to creating wealth.”
HNWI populations in Sao Paulo and Rio de Janeiro will rise by more than 140% over the next decade, putting them in the top 10 cities in terms of growth. By 2022, one in 10 of the world’s HNWIs will be living in Latin America.
Europe saw the most modest growth in the number of HNWIs last year, a symptom of the ongoing crisis in the eurozone. The total wealth held by the European ultra-wealthy also remained unchanged at around US$7tr.
But Wealth-X forecasts that wealth creation will pick up over the coming years, with a 31% rise in the number of HNWIs by 2022. Russia and Ukraine will see the highest growth levels in Europe, but Germany will still be home to the largest population of HNWIs in 2022, followed by the UK.
This positive outlook is reflected in the Attitudes Survey carried out for The Wealth Report. The survey, based on the opinions of wealth advisors and private bankers, shows that respondents in Europe expect the local economic situation to have a less negative impact on their clients’ ability to create and preserve wealth this year than in 2012.
Challenging Times
The Attitudes Survey also shows that HNWIs across the globe remain concerned about the possible impact of punitive tax policies. France plans to hit high earners with a tax rate of up to 75%, while countries including Spain and Ireland have also imposed wealth or property taxes.
Italy and Spain are the only countries where the number of billionaires is expected to fall over the next decade.
The tax landscape is a key risk for wealth creation in the coming years. “There are different motivations behind some of the recent tax rises,” Mr Rambus says. “In Hong Kong and Singapore, they are designed to address specific concerns – such as an overheating housing market. In other countries, governments are searching for ways to repair their balance sheets. Coming down hard on the wealthy creates some ‘political theatre’.”
The growing generation gap, in both developed and developing economies, poses another risk. Rising youth unemployment creates the prospect of a “lost generation” with no hope of the same levels of financial or social success as their parents and grandparents. For former US Treasury Secretary Larry Summers, this is our most pressing long-term issue.
In Europe and the US, youth unemployment has risen sharply since the financial crisis. In Africa, it threatens to act as a drag on economic growth.
Around 60% of Africa’s unemployed are aged between 15 and 24, and the rate of youth unemployment in North Africa is the highest in the world, according to the International Labour Organisation (ILO).
There is real impetus for policymakers to address this challenge. Economic growth in sub-Saharan African countries has been impressive in recent years, despite a slowdown in 2011 due to the political turmoil of the Arab Spring. Ethiopia, Nigeria, Ghana and Rwanda all posted GDP growth of between 6% and 8% last year, according to the latest estimates.
The number of young people in Africa is set to double by 2045, and harnessing their ability and skills is crucial to further bolster economic growth and to enable these fast-growing developing countries to realise their potential in terms of wealth creation. However, it is a sign of the opportunities on offer within Africa that HNWI numbers are expected to double if not treble (albeit from relatively low bases) in a number of countries, contributing to HNWI growth of 69% across the entire continent.
The economic crisis may have put the brakes on global wealth creation to some extent. But it is clear that the appetite to build wealth, particularly in ambitious, rapidly developing nations, remains as strong as ever.
Source: Knight Frank

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