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The wealthy shift to safer investments

By Wen Xin (China Daily)
Updated: 2008-09-26 10:15

The market jitters from the second half of 2007 snowballing into the current US financial crisis have prompted the wealthy in the Asia-Pacific region to revamp their investment portfolios, shifting from property and equities to deposits and fixed-income securities, says a new Merrill Lynch report.

The report, entitled Asia Pacific Wealth Report, published annually by Merrill Lynch and Capgemini Consulting, also finds that in 2007, China became home to the second largest population, or 14.8 percent, of "high net worth individuals" in the Asia-Pacific region.

Thanks largely to the particularly buoyant property and stock markets, the combined wealth of Chinese high net worth individuals rose 22.5 percent in 2007 to $2.12 trillion.

The report defines a high net worth individual as a person with more than $1 million in net assets, excluding his or her primary residence and consumables.

The report found that China accounted for 22.3 percent of the combined high net worth individuals' wealth in the Asia-Pacific region, trailing only Japan, which made up 40.1 percent of the total.

The report said economic growth and stock market returns were the key drivers of wealth accumulation in the Asia-Pacific region in 2007.

But migration of assets began around mid-2007. Market uncertainties resulting from the worsening US credit crisis forced the Asia-Pacific region's wealthy to shift investments to safer, less volatile asset classes, with 46 percent of their holdings allocated to cash/deposits and fixed-income securities, an increase of 7 percentage points from 2006.

The proportion of real estate investment by the wealthy in the Asia-Pacific region dropped 9 percentage points to 20 percent of their total investment portfolios. That proportion was estimated to drop a further 7 percentage points to 13 percent in 2009.

In 2009, the high net worth people in the Asia-Pacific region are expected to increase their allocations to alternative investments, mainly in the form of hedge funds or other investments, which can be more suited to uncertain market conditions.

Antony Hung, head of Pacific rim wealth management at Merrill Lynch, said: "Strong domestic demand and a growing entrepreneurial class continue to spur wealth creation in this part of the world."