ASIA-PACIFIC'S RECOVERY OUTPACES THE WORLD IN 2010

Asia-Pacific’s GDP is expected to contract 0.9% in 2009, less than the 2.7% contraction forecasted for the world’s GDP, says the report. The region’s recovery is also expected to outpace the world’s in 2010, with a growth of 3.5% that outperforms the forecast of 1.6% growth for the world.

Moreover, jobless rates in the Asia-Pacific region have remained lower than in other regions. Efforts to increase employment are underway, helping to underpin the region’s independent economic recovery. For example, the Singapore government introduced a special Risk-Sharing Initiative to encourage bank lending and increase access for small and medium-sized enterprises (SMEs) to credit.

An improvement in employment can definitely enhance regional demand. What’s more, the report points out that China and India is experiencing the highest domestic-demand growth in the Asia-Pacific region, which is forecasted to grow at a compound annual growth rate of 9.7% and 7.9% respectively during 2009-2013. The region is expected to focus on domestic-demand to reduce its reliance on exports of goods and services for growth. At the same time, an appreciation of the domestic currencies of Asia-Pacific countries would also increase real household income, drive consumption and reduce the region’s reliance on external demand.

EXPECTED ANNUAL GROWTH IN ASIA-PACIFIC HNWI WEALTH: 8.8%

Brazil has won the right to host 2014 FIFA World Cup and 2016 Olympic Games, drawing investors’ attention to Latin America. However, the report claims that markets such as China and India are forecasted to grow not only faster than their peers within the Asia-Pacific region, but also outpaces Latin America. A pick-up in investor risk appetites is likely to stimulate the region’s HNWI wealth growth. Merrill Lynch estimates the compound annual growth of Asia-Pacific HNWI wealth as 8.8% from 2008-2018, above the global average annual growth of 7.1%.

The Asia-Pacific HNWIs has suffered from huge asset loss brought by the financial crisis, hence their investment approach tends to be conservative by increasing their asset allocation on real estate holdings and cash (see Chart 2). However, they are expected to adapt a more balanced investment approach in the long run. The portion of structured products and hedge funds will be reduced, while fixed-income securities will take up a bigger part of their holdings.

A MORE BALANCED INVESTMENT APPROACH

Merrill Lynch expects Asia-Pacific HNWIs to increase their exposure to risky assets again in 2010 and they will take advantage of the buying opportunities as the equities markets rebound. However, they are also expected to seek a balanced investment approach and maintain liquidity while buying equities by increasing the allocation of fixed income and cash.

In the short term, domestic and home-region investments remain favourable for the Asia-Pacific HNWIs. However, as markets in other regions start to recover from the financial crisis, they might gradually increase the weight of mature markets in North America and Europe in their asset allocation to hedge out investment risks through geographic diversification.

CONCLUSION

Fundsupermart believes the significance and merit of long-term investment and a diversified portfolio construction in building up your wealth. The 2009 Asia-Pacific Wealth Report has specified the important roles of Asia-Pacific, China and India in the growth of global wealth. Besides, after the subprime crisis, the Asia-Pacific HNWIs has adapted a more balanced investment approach by increasing their allocation on fixed-income securities (e.g., debt funds) as well as building a more diversified portfolio. If you are yet to find out your own investment strategy, it always pays to learn a bit more about how money works for the rich.

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