Regional Facts
Overview
Overall, market performances were solid in 2007; however, closer
analysis of the key drivers and inhibitors of wealth reveals how the
many fundamental changes that took place over the course of the year
led to deteriorating economic conditions in key markets, including the
United States and several mature European nations. Evenly split, the
two halves of the year tell very different stories: Steady global
growth in the first six months followed by sharply diverging paths
between mature and emerging economies in the second half. Given 2007
performances and taking into consideration recent developments in world
markets, we project that global HNWI wealth will grow to $59.1 trillion
USD by 2012, advancing at a rate of 7.7% per year.
The key regional highlights and drivers are listed below:
North America: Growth Slows As Cooling Housing Market, Tight Credit, and Financial Market Turmoil Converge
- In the United States, real GDP growth in 2007 dropped to 2.1%, a 0.8% change from 2.9% in 2006.
- The United States had one of the world’s lowest savings rates in 2007, at 10.9% of GDP, down 0.5 percent from 2006 due to slowed GDP growth and increases in consumer and public spending.
- The Dow Jones Industrial Average and S&P 500 in the United States fell by double digits to their lowest rates in years: 6.4% and 3.5%. This is a dramatic drop from their respective growth rates of 16.3% and 13.6% in 2006.
- Meanwhile, the NASDAQ saw its growth accelerate slightly from, 9.5% to 9.8%, supporting still solid performances.
Europe: U.S. Downturn Affects Mature Economies; Sharp Increases in Commodity & Energy Prices Benefit Russia, Eastern Europe
- In Eastern Europe, the HNWI population expanded by 14.3% in 2007.
- Russia was home to one of the world’s 10 fastest growing HNWI populations despite growth decelerating from 15.5% in 2006 to 14.4% in 2007.
- As the world’s largest exporter of gas and second largest producer of oil, Russia experienced solid gains in 2007 of 37.6% in market capitalization and 7.4% in real GDP.
- Poland and the Czech Republic were among the top performers in Eastern Europe with GDP gaining through strong private consumption.
- Emerging Europe was the most popular regional destination for private capital, attracting $276 billion USD – enough to put it ahead of last year’s leader, Emerging Asia.
- Mature economies, such as Germany, France, and Italy experienced slower growth in 2007.
- The United Kingdom’s modest GDP growth of 3.2%, up from 2.9% in 2006 was a notable exception to the slow growth seen in mature economies.
- The German DAX, Europe’s best performer, was the only major traditional index to outpace its 2006 performance and sustain double digit growth.
- Overall macroeconomic indicators weakened in Europe in 2007. As a result, European HNWIs shifted their allocation to cash/deposits from 14% in 2006 to 21% in 2007.
Latin American: Wealth Increases on Strength of Commodities
- The HNWI population in Brazil grew an impressive 19.1% last year, up nearly 10 percent from 10.1% in 2006.
- Brazil enjoyed the third highest HNWI growth rate in 2007 among the countries analyzed.
- The HNWI population in Latin America expanded by 12.2% in 2007 and the region had the largest regional gain in wealth, up by 20.4%.
- Despite weaker figures than in 2006, Argentina and Venezuela led Latin America with real GDP growth rates of 8.4% and 7.8% respectively, thanks to booming oil and commodity exports.
- Private capital flows to Latin America more than doubled to $106 billion USD in 2007 from $52.6 billion USD a year earlier.
Asia-Pacific: HNWI Population & Wealth Boom in India & China
- India led the world in HNWI population growth, rocketing ahead 22.7% and exceeding gains of 20.5% in 2006.
- India’s Bombay Exchange and the National Stock Exchange of India had respective growth rates of 122% and 115%. Market capitalization growth was driven mostly by price increases in the very active financial services, property, construction, and infrastructure sectors.
- China ranked second in HNWI population growth, advancing 20.3% in 2007, more than two and a half times greater than its 2006 pace.
- The Shanghai and the Shenzhen Stock Exchanges experienced the highest growth worldwide, at 303% and 244% respectively. Growth in the two exchanges was fueled by organic price increases.
- China attracted the largest absolute amount of private capital in 2007 at a country level, drawing in roughly $55 billion USD.
- The Nikkei 225 in Japan was the world’s worst performing index, contracting 11.1%.
Middle East: Oil Continues to Sustain Growth
- The HNWI population in the Middle East had the highest gain, expanding by 15% and had a 17.5% regional gain in wealth.
- Sharp increases in oil prices, highlighted by the 57.2% gain on crude oil futures, greatly boosted growth in oil exporting nations, especially those in the Middle East.
- The Middle East remained the region with the most exposure to commercial real estate, with 33% of HNWI real estate investments allocated to this asset.
Asset Allocation
- Representative of global market performances, the various Dow Jones World Indexes only experienced moderate returns in 2007, averaging 6.8%, well below the 17.3% average struck in 2006. As a result, stock market gains did not have as positive an impact on HNWI wealth generation in 2007 as they did in 2006.
- Hedge funds also performed well in 2007 – another investment arena that reflected the growing strength of emerging markets. Although down slightly from 2006, average hedge fund gains in 2007 reached 12.6%.
- Institutional investors and HNWIs hold more than 70% of the $2.71 trillion USD Socially Responsible Investing (SRI) assets under management in 2007 and represented an increasingly attractive target for financial institutions and advisors.
- Roughly 12% if HNWIs and 14% of Ultra-HNWIs around the world allocate part of their investment portfolio to “green technologies and alternative energy sources.”
- Regionally, the most environmentally attuned HNWI and Ultra-HNWI populations were found in the Middle East and Europe – with participation rates ranging from around 17% to 21% in 2007, all exceeding the global averages.
- By comparison, only 5% of HNWIs and 7% of Ultra-HNWIs in North America allocated part of their portfolio holdings to green investing.
- In 2007, HNWIs sought refuge in safer, more traditional investment vehicles, increasing their overall portfolio allocations to cash/deposits and fixed income securities by 9 percentage points to 44% of their holdings.
For more information
- Please email us
