Welcome to the monthly instalment of news and views from PBI’s sister company WealthInsight. WealthInsight is the leading provider of business intelligence on HNWIs and the wealth sector. With an extensive database as the foundation for our research, we are able to obtain an unsurpassed level of insight and authority on HNWIs and the wealth management industry
Given its economic power, favourable government policies to attract start-up firms and the largest concentration of higher education, London attracts large number of foreign investors, most recently from the Middle East.
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The Middle Easterners are not only buying their second homes in London but are also investing in the capital generating many wealthy Londoners. According to the latest study by WealthInsight, London has third most millionaires in the world after Tokyo and New York. It is home to 281,000 millionaires. The total wealth of London’s millionaires is £763bn which equates to 40.6% of HNWI wealth held in the country.
However, the regulatory pressures from the new taxation of UK resident non-domiciled individuals (RNDs) and the possibility of mansion tax have now put London at a disadvantage. As of 4 August 2014, RNDs can no longer use their non-UK income/gains as a security for a loan without paying tax. This new policy means that the RNDs now have to pay tax on their foreign owned assets that are used as collateral for their UK loans which can end up costing them sore wallets.
The capital is also facing severe competition from New York and Hong Kong to attract businesses and wealthy foreigners. As increasing number of wealthy businessmen trade London homes for New York due to its tax breaks, cheaper prices and more relaxed approach to buyer’s backgrounds.
The economic challenge facing London does not stop here when the US banks have already planned ahead to move some London-based activities to Ireland amid fears that the UK is drifting apart from the EU. Bank of America, Citigroup and Morgan Stanley are ones of the early bird planners. This action could jeopardise London’s market position as one of the world’s top financial centres.
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By GlobalDataIf London is to remain competitive, the city needs to accommodate the growing needs of start-up firms, make the most of its financial experts and support a vast array of fresh talents who are ready to put their new ideas into business. Government policies to encourage young entrepreneurs are just a start of the long business journey to create more wealthy Londoners.
Dr Roselyn Lekdee, Analyst
roselyn.lekdee@wealthinsight.com
Pemex unlocks potential for Mexican investments
In August, Mexico’s Pemex, a state-owned oil company, has changed the legislation to allow private oil firms to operate in Mexico for the first time in 76 years after it announced the plans last year. As soon as 2015, private companies will be able to bid for joint ventures and investments with Pemex. Mexico’s government will keep 83% of the country’s existing reserves and will allow for four fifths of ‘prospective’ resources to be opened up to oil companies.
Mexico was severely impacted by the financial crisis with economic growth recovering strongly to reach 5.5% in 2010 and 4% in 2011. This strong growth of 3.6% continued into 2012but fell to 1.2% in 2013. According to WealthInsight there are145,000 HNWIs and 2,540 UHNWIs in Mexico. HNWI population is expected to grow by 7%by the end of 2014.
As the 11th largest economy Mexico’s GDP relies heavily on manufacturing which is the primary source of wealth for UHNWIs (17.4%). Furthermore, 70% of Mexican exports are driven by manufacturing followed by fuel and mining (15%). Given recent developments, fuel exports are likely to rise providing more opportunities for wealth creation.
However, the lack of competition in major sectors, such as telecoms, limits growth and has created a less innovative environment in Mexico. The high level of corruption in the country has also been a problem. Despite the setbacks,the government is making significant strides to invigorate its energy and unities sector which may be a sign of further reforms in the country.
Ouliana Vlasova, head of content
Expansion in the Chilean wealth management industry
In the wake of the 2009 financial crisis, many Chilean private banks suffered only minor setbacks compared to private banks in Europe and North America, resulting in many banks around the world looking to invest in Chile, due to its political stability and high level of growth in its HNWI population.
The willingness of domestic private banks in Chile to reform in order to comply with new regulations such as Basel III has also put them ahead of foreign competition, creating a high level of efficiency before measures officially come into place. Private banks within Chile have established large client bases that have been developed on trust and honesty, creating a client loyalty that has been lacking in Europe and North America.
HNWIs performance in Chile (2009-2018)
Price transparency has also been a major factor in the success of the domestic private banking sector, with banks such as Banco Chile priding themselves on being among the most transparent in Latin America.
The tactics have led to a high percentage of HNWI wealth being managed by domestic private banks. There were 44,141 HNWIs in Chile in 2013, the third largest market after Brazil and Mexico. These HNWIs hold US$243 billion in wealth. WealthInsight expects HNWIs to grow by 24% to reach 57,469 in 2018, and HNWI wealth to grow by 29% to reach US$337 billion by 2018.
Looking forward, economists forecast further expansion in the Chilean wealth management industry as more private banks and institutions start investing in the country.
Tom Carlisle, analyst
