Asia - Surge of private wealth in Asia could lead to asset inflation, say experts

The amount of private wealth in Asia is estimated to triple to US$16 trillion by 2015, according to Swiss private bank Julius Baer’s annual wealth report done jointly with CLSA. Some experts say the surge could lead to asset inflation problems for many governments.

And amid the current market volatility, Julius Baer said its clients in Asia have taken on more liquid positions in order to re-enter the market at a better opportunity.

Indonesia is set lead the region’s growth over the next five years in the number of people with liquid assets worth more than US$1 million. That number is expected to triple to nearly 100,000. That is above average for the region, where it is predicted the wealthy will more than double to 2.82 million by 2015.

But experts warn that the explosion of Asian wealth could pose a problem, with investment options limited to mainly property and the share market.

Kelvin Tay, Chief Investment Strategist with UBS, said: “In Asia in this point of time, currently we do not have as many investment choices as you would probably do if you are in the west or the US right now. So you need to actually look at that seriously and consider how you can actually broaden the scope for investment solutions to be found to cater to this increasing wealth that is being generated.

“In a worst case scenario, you’re going to get inflation coming through, because a lot of the assets that people are likely to invest in are probably be real estate, equities, property sector. There’s not much of a bonds sector right now. So property and equities will probably see a very strong investment interest from the wealth that’s being generated right now. More property than equities, I would presume.”

The wealth in Asia is expected to grow and that will be supported by the wider economic growth in the region and its currencies getting stronger.

To cater to this growth, Julius Baer said it is not holding back on hiring plans despite the market turmoil. It currently has 343 staff, a third of which are private bankers. However, it has observed that investors are currently more cautious.

David Lim, CEO of Julius Baer (Singapore), said: “Clients need guidance, in terms of when to move into markets, and deploy their money. In fact in Asia, most clients are actually relatively more liquid and looking for opportunities to enter when the markets are a little bit more attractive.”

According to Julius Baer, investors should wait for the price to book ratio for Asian markets to go lower. That is the ratio of a market’s average share price to the book value of its listed companies.

It is currently at just under 1.6, and Julius Baer says the sweet spot is between 1.2 to 1.4. The bank said investors entering there, typically gain over a three-year period.

CNA/ac

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