The number of high net-worth individuals in Asia Pacific slumped 14 percent in 2008 and they lost over a fifth of their wealth, leading to only cautious moves from cash back into stocks this year, Merrill Lynch and Capgemini said on Tuesday.
The financial crisis spurred a flight to safe assets, with cash holdings higher than in other regions at 29 percent and a surge in demand for gold, especially in China and Thailand, Merrill Lynch and Capgemini said in their Asia-Pacific Wealth Report 2009.
We expect them to remain cautious, said Eng Huat Kong, head of South Asia at Merrill Lynch wealth management.
Allocation to cash has certainly reduced and they have begun to get back into the equity market, he said at a briefing.
The annual report said despite last year's setback, the region will be one of the fastest drivers of growth among such millionaires, predicting compound annual growth of 8.8 percent in the wealth of this group until 2018.
The report expected Asian economic growth to be more than double that of world growth next year at 3.5 percent. Many policymakers from South Korea to the United States say growth-supporting policies need to be maintained to avoid the risk of a double-dip recession.
If there is another crisis, the impact will not be as dramatic as last year, Kong said.
The report said the region's wealthy are concentrated in Japan and China, which together made up 72 percent of the total, up slightly from the previous year as they saw milder losses than those in many other countries.
QUESTIONS FROM CLIENTS
By the end of last year India only made up 4.2 percent of the $7.4 trillion of wealth held up this group, defined as those with $1 million or more in investable assets.
The high net worth populations in India and Hong Kong saw the biggest pullback in 2008, on sharp falls in market capitalization, slumping housing prices and a drop in global demand for exports.
Overall exposure among the regions' wealthy to equities shrank to 23 percent at the end of last year and real estate holdings edged up to 22 percent.
Asia's wealthy are more often first-generation entrepreneurs willing to take on more risk and actively trade for high returns, compared to the older inherited wealth in Europe and North America, private bankers say, but the report said it expected cautious asset allocation in the short term and a more balanced approach in the long run.
The wealth management industry is in the midst of unprecedented change as volatile financial markets and the erosion of bank secrecy challenges traditional business models. Clients are asking more questions, making sure they are dealing with the right institution and banker, said Kong.
International banks will still have the key market share.
Private bankers told the Reuters Global Wealth Management Summit last week they were selectively hiring again and seeing new inflows, after a troubled year when worried clients have been pulling funds or trading less and banks have been laying off thousands of staff.
The war for talent is still seen by managers as one of the biggest challenges in the industry, with the latest defection coming from RBS Coutts staff in Singapore joining boutique Swiss private bank BSI, including RBS Coutts ex-head of South Asia Raj Sriram.
(Editing by Muralikumar Anantharaman)