THE RECENT EMERGENCE of a Mexican, Carlos Slim, as the world’s richest man is an indication of the growing wealth of Latin America.
According to the latest Merrill Lynch/Capgemini Annual world wealth report, there were 371,000 high-net-worth individuals (those with more than $1 million in investable assets as well as their principal home) on the continent at the end of 2006, up 10.2% on 2005. Total investable assets held by HNWIs in the region jumped by 23% last year to $5.1 trillion. Brazil, Latin America’s biggest economy, has 120,000 HNWIs, up 10% on 2005.
Although there are many more HNWIs in Asia (some 2.6 million), they have a total investable asset base of just $8.4 trillion, indicating that the concentration of wealth in Latin America is much higher than in Asia.
Many of them, such as Slim (whose personal fortune in July reached $63 billion, some $4 billion more than that of Microsoft’s Bill Gates), have done well on the back of rising stock markets.
This year, domestic investors seem to have become more aggressive in their local markets, fuelling the rise in the value of the region’s equities. However, in July, foreign investors also poured into Latin American emerging markets, seeing them as insulated from the US sub-prime crisis but useful as a high-return alternative.
Many other HNWIs have been created because of high commodity prices, which are highly significant in a primary materials-rich region such as Latin America. Others have benefited from an appreciation of their domestic currencies, pushing them into the HNWI bracket in dollar terms for the first time.
Robert Crespi, senior manager at the wealth management practice of Capgemini, says: "I think the main reason for wealth generation in Latin America has been the high commodity prices. Oil, natural gas and other natural resources are all important in the region. The countries where we have seen the biggest rises in wealth have been Brazil, Argentina, Chile and Peru – all commodity-rich states. There has been strong and growing demand from China for Latin American commodities."
Crespi adds: "The growth in stock markets throughout the region has also been an important contributory factor to wealth generation. The number of HNWIs in Latin America has been rising rapidly but, in line with a slowdown in the rest of the world, we expect it to increase by only 7.2% in coming years."
Darcie Burk, head of Merrill Lynch’s global private client group for Latin America, says: "Brazil, Mexico and Argentina are the established marketplaces for private banking in the region, but we really are seeing an increase in the number of HNWIs throughout the continent.
"One of the main reasons for the growing wealth has been the rise of stock markets. Furthermore, Latin America is very much part of the global economy. Multinationals have been acquiring companies throughout the region. That creates a lot of liquid wealth for the owners.
"Perhaps in the past Latin America was seen by foreign investors as suffering from a boom-bust cycle, and foreign investment in the continent was more opportunistic. Now, though, I think there is a higher volume of long-term strategic investments.
"High commodity prices have also helped in creating wealth, especially in Brazil. The strong stock market has been important for wealth generation in the case of Mexico. The country is a long-term beneficiary of the North American Free Trade Agreement. There has been a strong consumer credit boom and the mortgage market is opening up."
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"The number of HNWIs in Brazil has grown tremendously during the past two to three years"
Lywal Salles, Banco Itaú
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Lywal Salles, chief executive of Banco Itaú’s private bank, the biggest private bank in Brazil with $26 billion of assets under management and some 6,000 private clients, says: "The number of HNWIs in Brazil has grown tremendously during the past two to three years. One of the main reasons has been the big rise in the number of initial public offerings, creating a lot of wealth for their shareholders.
"The whole economy has been booming. Many mid-sized companies have been sold to foreign investors. Brazil has developed a stable political and economic environment. The country has also benefited because it has been classified as one of the Brics, along with Russia, India and China."
Strong economic growth in the region has helped to push up wealth levels. IMF figures indicate that real GDP in South America and Mexico grew by 5.4% last year, compared with 4.5% in 2005. It forecasts 4.8% growth this year.
According to Merrill Lynch, the returns on Latin American equities increased by 36% from the start of the year until mid-July (against 25% for all emerging markets) and, so far this year, global inflows into Latin American equities have amounted to $6.2 billion (from a total of $14.2 billion for all emerging markets).
According to MSCI, the year-to-date returns from Peruvian equities, at 82%, have been the highest in the region, followed by 44% from Brazilian equities and 21% from those in Chile. Analysed by industry sectors in the region as a whole, the year-to-date returns on materials equities have been the highest, at 52%, followed by telecoms at 39%.
The index of the Brazilian stock market, the Bovespa, is now above 58,000, compared with 44,000 at the end of December 2006, 33,000 at the end of 2005, and 26,000 at the end of 2004.
Michael Hartnett, chief global emerging markets equities strategist at Merrill Lynch, says: "Investors have poured into the emerging markets in recent weeks. Our fund managers’ survey shows that investor worries over US credit conditions have boosted allocation toward cyclical assets such as emerging market equities. So 2007 is becoming the reverse of 1998.
"This is good news for wealth generation in Latin America. Positive drivers, such as strong currencies, low inflation and high commodity prices, continue to attract capital to Latin America. In addition, domestic investors are at last allocating more assets to the local equity markets."