India, China to rise in ranks as wealth centers by 2017: Report

• IBTimes RSS
• Print
• E-Mail
• digg
• Del.icio.us

The UK-based bank said emerging markets like India, Russia and China are fast catching up with their richer cousins in terms of wealth.

In 2007, G7 nations Canada, France, Germany, Italy, Japan, the UK and the US had more than one million millionaire households, the report 'Evolving Fortunes,' the fifth installment of an influential series 'Barclays Wealth Insights' launched in December 2006, said.

While the US is expected to continue to dominate the Household Wealth Index, followed by Japan, China, the UK, Germany, France and Italy, "Over the coming decade, the gap in wealth between the world's most developed countries and the leading emerging markets will continue to narrow with many new millionaires being created in India, China, Russia and other countries which are undergoing rapid development," the report said.

"At the same time, the continuing economic dominance of the world's established powerhouses can no longer be taken for granted. This shift in the balance of power is already well under way, as can be seen from the way in which countries such as China, India and the Gulf nations are being relied upon to sustain the momentum of the global economy as developed countries in North America and Europe start to run out of steam," it added.

The report said the total wealth held by Indian millionaires, which would rise to 4,11,000 by 2017, would be $1.7 trillion.

In comparison, China will have around 4,09,000 millionaires by 2017 with an aggregate wealth of $795.4 billion.

In India, around 1.9 million households (mass affluent category) will have $500,000 each while 29 million households will have $100,000 each, the report said.

Traditionally, Indians invest most of their savings in physical assets like real estate and gold. However, that is soon going to change. "We are seeing a cultural change driving attitudes towards wealth in India. Composition of assets of wealthy Indians is increasingly shifting from physical assets to financial assets," Satya Bansal, CEO, Barclays Wealth, India, said.

"We foresee huge potential in the creation of financial assets, as real estate and gold still account for more than half of the household wealth in the country," he said.

According to Bansal, factors contributing to India's wealth surge will be inherited wealth, promoter's wealth and wealth of professionals and celebrities.

In fact, over the next decade, the four nations - Brazil, Russia, India and China (BRIC) - will have so much wealth that it will be inappropriate to call them emerging markets, the report said.

"Many new millionaires (will be) created in China, India, Russia and other countries that are undergoing rapid development," Barclays Wealth said. "This trend suggests that a point will soon come when it is more appropriate to say that these countries are central players in the global economy, and should no longer be classed as emerging or developing," it added.

The surge of wealth in the emerging markets have in fact threatened the positions of more developed economies, the report continued, adding, Australia's rank has fallen from 10th to 16th, while South Korea and Portugal saw their ranks fall from 12th and 25th to 15th and 34th respectively.

Success of maturing markets like Turkey (up 26th position from 32nd) and Malaysia (up 28th position from 35th) has also caused the displacement of historically stronger economies, such as Norway (relegated from 27th to 31st place).

By 2017, India will rise to the 8th position in terms of being home to largest number of millionaires from the present 14th rank, while China will climb to the third position from the present seventh place, the report said.

While Russia is projected to move up to 11th spot from the current 19th, Brazil could move up the wealth ladder from the present 15th position to 12th, it added.

However, the rapid rate of growth and often spectacular returns from local equity and real estate markets has attracted a new breed of inexperienced investors.

According to Gerard Aquilina, managing director and head (International Private Banking), Barclays Wealth, with the development of local capital markets and growing appetite among investors to participate in their countries' economic growth, education is key.

"Either through the financial services industry or the government, investor education is absolutely essential to avoid over concentration in any one particular asset class," he said.

Agrees Bansal. Indians who recently became wealthy are biased against investing abroad, he said.

In terms of wealth density, Singapore ranked 2nd with 23.3 percent millionaires, trailing Hong Kong, home to the highest percentage of millionaires (26.4 percent) in 2007. However, within the next decade, Singapore will surpass Hong Kong to grab the top spot with 40.7 percent of its households or 436,000 households boasting new wealth in excess of $1 million. Switzerland, the UK and Denmark will grab the 3rd, 4th and 5th spots respectively, the report said.

Other nations to rise through the ranks in terms of density of millionaires are Japan, Netherlands, Brazil and Turkey, it said.

The opening of previously protected sectors such as financial services and several free-trade agreements (FTAs) as well as efforts made in moving away from manufacturing to higher value-added services such as technology will contribute to the spurt in the number of millionaires in the city-state, Barclays Wealth said.

According to the Barclays Wealth report, despite talks of recession and global financial turmoil, the economies of the oil-rich high-liquidity Gulf nations (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) will continue to grow strongly.

Besides huge volumes of oil exports, "other factors have also played a part in the huge increase in wealth in the region," said Soha Nashaat, managing director, Barclays Wealth (Middle East, North Africa and Turkey).

"Low interest rates, the repatriation of finance in the wake of the September 11 2001 terrorist attacks, and the policy decision of many GCC governments to diversify their economies beyond hydrocarbons have all played a role. As a result of these trends, privately held wealth in the region has increased significantly," Nashaat said.

According to EIU estimates, the ongoing real-estate boom in United Arab Emirates (UAE), especially in Dubai and Abu Dhabi, has drawn large number of foreign investors and in 2006, FDI (foreign direct investment) stood at $16 billion.

Based on these figures and trends, and in the absence of official published data, the EIU has estimated that the total stock of FDI in the Middle East region stood at $44 billion or 27 percent of GDP in 2006. And, with international crude oil prices projected to remain above their long-term average over the next five years, and concomitant liquidity in the region therefore expected to remain high, FDI is expected to exceed $100 billion by 2011 (around 33 percent of the region's GDP).

"These forecasted FDI figures are further proof to the success of the visionary leadership in the region and the drive towards a sustainable and economically prosperous future. The Middle East will continue to be a region of strategic importance and future growth for Barclays Wealth," Nashaat said.

The report, which provides a unique examination of the future global spread of wealth, including the projection of the number of wealthy households in 2017 in 50 markets, represents an opportunity for asset management and investment companies like Barclays Wealth to analyze the performance of developing markets and plan their business strategies accordingly.

HIGHLIGHTS OF THE REPORT

· The top 10 wealthiest countries in 2017 will be: 1) USA, 2) Japan, 3) China, 4) UK, 5) Germany, 6) France, 7) Italy, 8) India, 9) Canada and 10) Spain.

· By 2017, there will be more than 61 million HNIs compared to just 34.5 million in 2007.

· The combined wealth of the HNIs will exceed $154 trillion b 2017.

· The number of HNIs with more than $5 million in the top ten nations will reach a staggering 5.2 million within a decade, compared to 2 million in 2007.