UAE’s high net worth population shrinks

The population of high net worth individuals dropped 3.5 per cent in the UAE consequent to a decline in market capitalisation and housing prices.

DUBAI — The population of high net worth individuals, or HNWI, who have investable asset of $1 million or more, dropped 3.5 per cent in the UAE consequent to a decline in market capitalisation and housing prices, a report released on Wednesday said.

This drop was far slower in contrast to the steep decline of 18.8 per cent witnessed in 2009, the report released by Merrill Lynch Global Wealth Management and Capgemini said.

Despite a 2.1 per cent in real gross domestic product, or GDP, surge to $176.8 billion in 2010 from $173.2 billion in the previous year, the number of HNWIs in the country dropped to 526,000 from 545,000 in 2009, said the report. Even a surge of 13.9 per cent in UAE exports to $198.9 billion in 2010 did not help ward off the decline in the wealthy population, the report said.

However, the number of HNWIs grew in Saudi Arabia and Bahrain. Saudi Arabia had 113,300 HNWIs in 2010, an increase of 8.2 per cent from 2009. In Bahrain, there were 6,700 HNWIs in 2010, up 24.0 per cent from 2009.

Globally, the number of wealthy people and their wealth surpassed 2007 pre-crisis levels in 2010. “Global HNWI population and wealth growth reached more stable levels in 2010, with the population of HNWIs increasing 8.3 per cent to 10.9 million and HNWI financial wealth growing 9.7 per cent to reach $42.7 trillion (compared with 17.1 per cent and 18.9 per cent respectively in 2009).

The global population of Ultra-HNWIs, who have assets of over $30 million, grew by 10.2 per cent in 2010 and its wealth by 11.5 per cent. In 2010, the Middle East had one of the highest growth rates after Africa, with HNWIs population rising by 10.4 per cent to 440,000, and their combined wealth increasing by 12.5 per cent to $1.7 trillion.

“The past few years have seen great fluctuations in HNWI wealth and population,” said Tamer Rashad, Head of Middle East, Merrill Lynch Wealth Management. “In 2010, we saw growth rates slow down from the higher double-digit levels of 2009 when many markets were quickly returning from significant crisis-related losses.”

The global HNWI population remained highly concentrated in the US, Japan and Germany, which together accounted for 53.0 per cent of the world’s HNWIs. The US is still home to the single largest HNW segment in the world, with its 3.1 million HNWIs accounting for 28.6 per cent of the global HNWI population.

“While over half of the global HNWI population still resides in the top three countries, the concentration of HNWIs is fragmenting very gradually over time,” said Karthikeyan Rajendran, Sales Director, Middle East, Global Financial Services, Capgemini.

“The concentration of HNWIs among these areas will continue to erode if the HNWI populations of emerging and developing markets continue to grow faster than those of developed markets.”

Asia-Pacific surpasses Europe for the first time in both HNWI population and Wealth

Asia-Pacific posted the strongest regional rate of HNWI population growth in 2010 among the top three markets. While HNWI wealth had already overtaken Europe in 2009, Asia-Pacific has now surpassed Europe in terms of HNWI population, expanding 9.7 per cent to 3.3 million, while Europe grew 6.3 per cent to 3.1 million. Asia-Pacific HNWIs’ wealth gained 12.1 per cent to $10.8 trillion, exceeding Europe’s HNWI wealth of $10.2 trillion, where the wealth increase was 7.2 per cent in 2010. Asia-Pacific is now the second largest region for both HNWI wealth and population, second only to North America.

Also of note in the Asia-Pacific region, India’s HNWI population became the world’s twelfth largest in 2010, entering the top 12 for the first time.

In 2010, HNWIs assumed calculated risk in search for better returns in 2010.

In an environment of relatively stable but uneven recovery, equities and commodities markets, as well as real-estate (specifically in Asia-Pacific), performed solidly throughout 2010.

By the end of 2010, HNWIs held 33 per cent of all their investments in equities, up from 29 per cent a year earlier. Allocations to cash/deposits dropped to 14 per cent in 2010 from 17 per cent in 2009 and the share held in fixed-income investments dipped to 29 per cent from 31 per cent. Among alternative investments, many HNWIs favored commodities. Commodity investments accounted for 22 per cent of all alternative investments in 2010, up from 16 per cent in 2009.

HNWIs in Asia-Pacific, excluding Japan, also continued to pursue returns in real estate, which accounted for 31 per cent of their aggregate portfolio at the end of 2010, up from 28 per cent a year earlier and far above the 19 per cent global average.

In addition, investments in emerging markets provided opportunities for HNWIs in search of profit. In the first 11 months, investors poured record amounts into emerging market stock and bond funds before selling to capture profits as the year ended and after the value of many emerging market investments topped pre-crisis highs.

“Global capital markets and major asset classes performed well over the year on the back of rising investor risk appetite,” said Rashad. “The shift toward equities in 2010 by HNWI investors reflected the search for returns and the desire to recoup more crisis-related losses. We also saw HNWIs continue to favor specific asset classes, such as equities and commodities, based on market opportunity or long-standing preferences.”

Looking forward, HNWIs are expected to increase their equity and commodities allocations even more in 2012 while reducing their allocations to real estate and cash/deposits. Regional preferences are less certain as the extent of emerging market opportunities will depend on whether those markets can push to new highs while economies are being weaned of government stimulus.

issacjohn@khaleejtimes.com