More Millionaires Created in 2002 Despite Depressed Markets

by Phillip Morton, Investors Offshore.com

30 June 2003

The recently published 2003 World Wealth Report compiled jointly by Cap Gemini Ernst and Young and Merrill Lynch has revealed that the wealth of the world's high-net-worth individuals grew by 3.6% to $27.2 trillion last year, despite fluctuating fortunes in the global financial markets.

The study defines high-net-worth individuals as those with financial assets of $1 million or more, excluding home real estate. According to James Gorman, president of Merrill Lynch's Global Private Client group, the number of high-net-worth individuals grew by a little under 200,000 or 2.1% to a total of 7.3 million. Nevertheless, this still represents the lowest rate of growth since the first wealth report seven years ago.

Meanwhile, the ranks of ultra high-net-worth individuals, representing those with assets of $30 million or more, also swelled last year, rising 2% to total 58,000 people, with their combined wealth increasing an estimated 3.6%.

James Greene, vice president of financial services at Cap Gemini Ernst and Young attributed much of the recent increase to higher rates of saving around the world, coupled with a steady rise in world GDP levels.

"However, declining stock prices slowed HNWI wealth accumulation around the globe compared to that of the 1990s," Green explained, adding: "Worldwide stock market capitalization fell 16.9% over the 12 months to the end of 2002."

Mr Greene reported that the Asia Pacific region saw the highest growth rate in HNWIs, whilst the number actually declined in North and Latin America.

Merrill's Mr Gorman observed: "In North America, HNWI wealth declined 2.1%, or $200 billion, to $7.4 trillion (7.05 trillion euros) over 2002. There also was a 1.9% decline in the number of HNWIs in North America, down to 2.22 million individuals. Their numbers and wealth was undermined by continued declines in U.S. equities markets. However, the decline in their wealth was substantially less than the 22% drop in the value of the Standard & Poor's 500 index over 2002, indicating that high-net-worth investors had strategies in place for wealth preservation."

"European HNWIs fared better, with their wealth up 4.8%, or $400 billion, to $8.8 trillion (8.4 trillion euros) in 2002," Mr Gorman continued. "The number of HNWIs in Western, Central and Eastern Europe rose 3.9%, or a net 100,000 people to 2.6 million individuals. European HNWIs moved earlier than their counterparts elsewhere to diversify portfolios across major asset classes, insulating them against the worst of the downturn and enabling them to grow wealth. They also benefited from the strength of the Euro and the pound sterling," he noted, adding: "The largest concentration of HNWIs is in Europe and accounts for a third of global HNW wealth."

Surprisingly, given the economic environment in Japan over the past decade, the wealth of HNWIs leapt by 10.7% or $400 billion in the last year, with their total wealth now standing at $5.7 trillion.

"The growth was supported by relatively high saving rates and robust GDP growth in key regional economies such as China, South Korea and Australia." Mr. Gorman explained, continuing: "HNWIs in the Asia-Pacific region responded quickly to insulate their financial wealth against new market realities and build diversified portfolios."

Meanwhile, Latin America experienced a "difficult year" said Mr Gorman. Although the financial assets of HNWI increased by $100 billion or 2.7%, their numbers in this region declined 3.6% to 270,000 individuals. These mixed results were attributed to steady growth rates in Mexico and Brazil coinciding with the Venezuelan oil crisis and the crash of the Argentinean peso.

Also, according to Gorman, the region's "comparative stability was aided by Latin American investors' propensity for fixed income products over equity products and their allocation in U.S. dollar-denominated investments,"

The picture was slightly healthier in the Middle East where the wealth of HNWI grew by 4.6% or $45 billion last year. Also the number of HNWI there grew by 4.7% to reach 300,000 individuals.

According to Greene, the upward trend in the wealth of high net worth individuals in the last year, when set against some of the most volatile market conditions in living memory, was achievable due to an increasing awareness of risk and effective diversification of portfolios. Also, a greater propensity for investment in fixed income vehicles and other alternative investments less closely linked to equity prices has also contributed to the trend.

"In 2002, the investor mantra became 'cash (and fixed income) is 'king'," concluded Mr. Greene.

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