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Sunday, 9 December 2012

KFH-Research: $1.2 trillion assets of the rich in GCC

A report issued by KFH-Research about wealth and funds management mentioned that one million wealthy families in the GCC own investment assets worth $1.2 trillion.

The report added that Kuwaitis third in assets that are worth $150bn. The report noted that Islamic funds remain slow in developing their structures, despte increasing demand for islamic finance services in the region and the world; especially that there are 1030 funds that triggered growth in managed assets to reach $64bn by end of October.

The world's population of HNWIs grew by a marginal 0.8% y-o-y to 11.0 million in 2011, after witnessing robust growth rates of 17.1% y-o-y in 2009 and 8.3% y-o-y in 2010. The aggregate financial wealth of these HNWIs however declined by 1.7% y-o-y to $42.0tln in 2011, mainly due to challenging global macroeconomic conditions and volatile global financial markets. To compare, the aggregate financial wealth of HNWIs had gained 18.9% y-o-y in 2009 and 9.7% y-o-y in 2010 given the significant rebound from crisis-related losses post the global financial crisis.

Asia Pacific was the star performer, which saw the number of HNWIs in the region rose by 1.6% y-o-y to 3.37 million individuals in 2011. This was the first time Asia Pacific surpassed North America in terms of HNWIs. However in terms of asset values, the financial wealth of Asia Pacific HNWIs stood at $10.7tln in 2011, a slight decline of 1.1% y-o-y. In 2011, Hong Kong and India were hit by declines in their equity markets capitalisation. In Hong Kong, concerns on the European sovereign debt crisis weighed on the outlook for growth.

Meanwhile in India, sentiments were dragged down by the lack of faith in the country's political process and the slow pace of domestic reforms. Elsewhere in Singapore, financial wealth was impacted by the sharp drop in export revenues. In contrast, Thailand's financial wealth increased on the back of significant real estate gains as well as a solid growth performance.

North America's HNWIs were at 3.35 million individuals in 2011, almost unchanged from the previous year. North America continued to dominate the largest share of the global HNWIs' financial wealth in 2011. At $11.4tln, North America HWNIs' total financial wealth declined by 2.3% y-o-y in 2011.

In Europe, the number of HNWIs grew by 1.1% y-o-y to 3.17 million individuals in 2011, supported by the growing number of HNWIs in Russia, the Netherlands and Switzerland. The aggregate financial wealth of European HNWIs however declined by 1.1% y-o-y to $10.1tln, impacted by the on-going European sovereign debt crisis and investors adopted more cautious and risk-averse investment approach.

In the Middle East, the number of HNWIs increased by 2.7% y-o-y to 0.45 million individuals. Total financial wealth of the Middle East HNWIs grew by 0.7% y-o-y to $1.7tln.

Globally, the US, Japan and Germany combined accounted for 53.3% of the world's HNWI population in 2011, up from 53.1% ion 2010. However, the share of global HNWI population held by these three countries combined has been eroding gradually from 54.7% in 2006. The HNWIs of emerging and development countries continue to grow faster than those of the developed countries.

GCC Accumulation of Wealth

The GCC region is blessed with one of the world's most valuable commodities i.e. oil. Since the 1970s, whenGCC oil companies were nationalised and oil prices surged, the region's GDP as well as individual fortunes have grown significantly.

Between 1980 and 2011, the aggregate nominal GDP of GCC states combined grew at a cumulative annual growth rate (CAGR) of 16.5%, from $250.7bn in 1980 to approximately $1.4tln in 2011. Similarly during this period, GCC total population has grown at a CAGR of 7.7%, from 13.5 million in 1980 to 43.2 million in 2011. Strong GDP growth has sustained high levels of average nominal GDP per capita for the region, from $21,475 in 1980 to $45,530 in 2011. Therefore, GCC states have consistently maintained high levels of savings in the past two decades (with the exception of oil price crisis in early 1990s), with the gross national savings averaging at 46.2% in 2011.

Market consensus is that there are around 1 million wealthy households in the GCC region, with total investable assets of $1tln to $1.2tln. Of these, around 260,000 to 280,000 households have total assets of more than $1mln in each household. 

By country, Saudi Arabia has the most number of wealthy households, estimated between 600,000 and 625,000, followed by the UAE (200,000-220,000) and Kuwait (120,000-130,000). Naturally, Saudi Arabia also has the highest total investable assets in the region, estimated at $500bln to $550bln, followed by theUAE ($260bln to $280bln) and Kuwait ($140bln to $150bln).

Islamic Finance

Islamic asset and wealth management is a niche segment of the Islamic financial services industry that has experienced stable growth since 2004. Islamic funds have grown from 285 in 2004 to 1029 as at end-October 2012. Despite this, Shariah-compliant funds have been slow to develop sophistication and market depth. One of the main reasons remains the fact that Islamic mutual funds are dependent on the availability of other Shariah-compliant solutions. Until the Islamic equity and fixed income markets had sufficient volume, Islamic wealth management solutions were lacking opportunities.

As the Islamic finance industry gains momentum across the globe and awareness of Shariah-compliant solutions amongst various populations increases, Islamic funds have become increasingly retail driven. Furthermore the rising wealth in Muslim nations, especially in the emerging economies and oil-rich countries, has helped drive investible assets to new heights. As at end-October 2012, assets under management of Islamic funds grew to $64bn from $29.2bln in 2004.

By domicile, Islamic funds are majorly focused in Saudi Arabia and Malaysia followed by Ireland, the US and Kuwait, as at end-October 2012.

Islamic funds raised in 2012 were largely equity funds, constituting 59.0% in terms of assets under management, while a further 20.5% being mandated to invest in a mixed portfolio of assets, which normally also consist of a large portion of equities. Money market funds also remain popular this year given below average equity returns and considerable concern on the prospects of economic growth in many developed and emerging countries. Despite this, new funds have been mandated to invest globally as well as other traditional markets in the Asia Pacific and Middle East.

Mixed asset funds have been the best net performing asset class for Islamic investors from 2007 until the end-October 2012, growing by 50.66%, while equity and commodity funds returned 46.15% and 32.73%, respectively, over the same period. Islamic equity funds witnessed steep declines in 2008 before rebounding in 2009 and 2010. However, the asset class lost 5.01% in 2011 in line with the global equity markets. The most profitable asset class this year has been the real estate funds, achieving a 13.00% year-to-date return, followed by equities (9.38%), mixed assets (8.89%) and sukuk funds (5.56%).

Overall, Islamic funds have evolved into wealth management vehicles, which cater to investors who want exposure to capital markets inside a Shariah framework. The Islamic asset management landscape post-crisis has seen investors that are more discerning in their investment choices. This is due to risk aversion and limited capital, resulting in the change of appetite to a more domestic centric nature (Asian investors prefer Asian-themed funds and Middle East investors prefer GCC funds).

Moving forward, both the demand for and supply of Islamic funds is expected to grow given the mounting wealth and preference for Shariah solutions. Future demand is expected to be generated from the growing attraction of Islamic funds for diversification in an uncertain economic environment, the growing preference for Islamic alternatives, as well as the improving track record of Islamic funds which opens investment opportunities to the larger fund managers, insurance funds and pension funds.

(Ameinfo.Com / 08 Dec 2012)

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