Thursday 28 Mar 2024
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THE new wealth builders (NWBs) are the world’s fastest growing and broadest wealth segment, according to a report by the Economist Intelligence Unit (EIU). 

These NWBs, with investable assets of between US$100,000 (RM361,003) and US$2 million are outpacing high net worth individuals (HNWIs), who have assets of US$2 million or more, in terms of number of households and aggregate assets. 

new-wealth-table

The mass market, meanwhile, is defined as households with investable assets of US$100,000 or less. According to the report, titled Spotlight on the New Wealth Builders, the growth of the NWBs is due to more mass market households entering the segment. 

NWBs, with US$88 trillion worth of assets today, are heading towards an estimated US$145 trillion by 2020 — a compound annual growth rate (CAGR) of 7.3% between 2010 and 2020. Conversely, the mass market segment is contracting.

The Citibank-sponsored report also looked at the average growth of NWBs by region for 2014 to 2020. The fastest growing regions are Latin America and Asia-Pacific at 11.1% and 10% respectively, followed by Russia and Central Eastern Europe at 9%. The slowest growing regions are Western Europe and North America at 2.5% and 2%.

“The report underlines the opportunities we see in our wealth management business in Asia, where we manage over US$250 billion in client assets,” says Paul Hodes, head of wealth management (Asia-Pacific) at Citibank.

“All the top five countries expected to see [NWB] growth over the next five years are in the region — India, Indonesia, Vietnam, Thailand and the Philippines. We are targeting strong growth in Asia from wealth management services, where we already bank more than 500,000 clients.”

India, which is anticipated to have the fastest growth of NWBs globally, is expected to see up to 4.9 million households with an average of US$178,000 in financial assets. This 47.4% rise in NWBs is driven by private consumption.

For second-placed Indonesia, wealth will come from economic growth, with the EIU expecting real GDP growth rates of 5.5% to 6.6% between 2015 and 2020. Improvements in local infrastructure and workplace skills will help the country capture manufacturing jobs that were once aimed at China, says the report. Private consumption, expanding at 5.6% annually, will help drive economic growth.

The growth of NWBs in Latin America is being driven by countries such as Mexico, which benefits from capital and jobs moving south of the US-Mexico border, and Brazil, which has a diversified economy, a relatively stable political environment and favourable government policies toward foreign investments.

Numerous factors, however, are slowing the growth of NWBs in Russia and Central Eastern Europe. They include sanctions stemming from the conflict in Ukraine and declining oil prices, which have harmed regional growth prospects, deterred capital investments, and accelerated inflation. The segment is also seeing slower growth in Western Europe and North America as these more mature economies already have a large NWB base.

“More developed nations with mature, middle-class populations face decelerating growth rates that will underscore dampened NWB creation,” says the report. “On aggregate, NWBs in emerging markets are accumulating wealth much faster than their counterparts in developed countries.”

Who are the NWBs?

In detailing the makeup of this wealth segment, the EIU says NWBs comprise mainly working professionals, such as doctors, lawyers, accountants, investment advisers and executives. About 97% of them earn their wealth, deriving it from sources including their professions (34%), personal investments (24%), real estate investments and land development (15%), and entrepreneurship (8%).

 NWBs are also global citizens who travel frequently for work (over half of them travel for business at least three times a year), and over a quarter of them maintain bank accounts in at least two countries. 

“They prize independence, self-motivation, social responsibility and rigorous stewardship of financial assets,” says Hodes. “In this respect, they exhibit many of the traits of the mass affluent and HNWIs.”

When it comes to investment strategies and outlook, 84% of NWBs direct their own investment portfolios, favouring growth-oriented asset classes. Domestic equities, mutual funds and pooled funds are their preferred asset classes, while sovereign bonds are the least favoured.

According to Hodes, more than half of the NWB respondents cite steady or high growth investments as their main goal. “Appetite for growth, together with increased confidence in global markets, has added more exotic names to the list of nations where they plan to start investing in the near future. These countries include Andorra, Bhutan, Ecuador, Ghana, Greenland, Iceland and Malawi.”

For the time being though, the US, the UK, India, Australia and Singapore are the top five countries in which NWBs have most of their assets, as these are strong and stable nations with a long-term commitment to free and transparent markets. The outlook for China is also starting to fill NWBs with confidence, Hodes adds.

 “The growth factor largely underpins their investment decisions, but it also depends on their circumstances,” he says. “As NWBs approach retirement, clearly they will be more focused on capital preservation and more stable returns like fixed income assets, such as government bonds or investment-grade corporate bonds.”

The information in the report was based on a global survey of 1,552 individuals who meet the NWB criteria in 30 countries across 18 industries.

 

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on May 11 - 17, 2015.

 

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