The high net worth community in Indonesia has been booming since 2007, increasing in number by two-thirds and thriving amid the global financial crisis. Christopher Rocks breaks down WealthInsight’s research which predicts the number of HNWIs in Indonesia will more than double by 2016
Since the Asian financial crisis at the end of the 1990s, the rise in the number of wealthy Indonesians has been dramatic.
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While the Asia-Pacific region is widely acknowledged as the fastest growing region for high net worth individuals (HNWIs), Indonesia may well be the stand-out performer.
Recent research by WealthInsight, the London based global wealth consultancy, details how the Indonesian HNW landscape will look in 2016, detailing a range of new opportunities in the Indonesian wealth sector.
WealthInsight’s report on the country, Indonesia – 2012 Wealth Book: Asia’s Emerging Giant looks at a review period stretching back to 2007 and a forecast period stretching to 2016 and shows the number of HNWIs in Indonesia more than doubling in the years ahead.
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By GlobalDataRiding through the financial storm
Indonesia was among the countries least affected by the 2008 global financial crisis, a feat which is evident in the performance of its wealthy population.
According to WealthInsight the total number of HNWIs increased by two-thirds between 2007 and 2011, HNW wealth almost doubled in this time – the highest growth for any major country in the world, well above the growth rates for both China (41%) and India (32%), albeit from a lower base level.
As of 2011, there are just over 37,400 individuals with net assets of $1 million or more in Indonesia, with a combined wealth of $241 billion.
This marks a significant improvement since the Asian financial crisis in 1998. At that point, the economy collapsed, leading to capital flight as investors, and thousands of rich Indonesians, fled the country.
The recent rise in affluence comes on the back of robust growth in the Indonesian economy under the supervision of President Susilo Bambang Yudhoyono. GDP grew by 6.5% in 2011, the strongest performance since 1996, and the country’s relatively low export/GDP ratio, falling levels of government debt, and diverse economic base, leave it less vulnerable to the current fragile conditions in the global economy than most emerging markets.
"The medium term outlook is also promising," says Danny Richards, Asia analyst at Timetric, an economic research firm, "Indonesia’s economy will expand by around 6% a year, with strong domestic demand growth offsetting weakness on the external side."
And despite increased downward pressure on the rupiah in recent months, investor confidence remains buoyant: the JSX composite index, an index of all stocks on the Indonesian Stock Exchange, outperformed global markets over the review period, rising by 25% from 2007 to 2011.
By August this year, $123 million had been added to Indonesian funds, boosting local equities, the largest asset class for HNWIs in Indonesia.
The trends are clear. Indonesian wealth is rising massively in step with its swelling ranks of HNWs.
The build-out of its onshore private banking industry is surely to follow with local retail banks and those offering Shariah compliant investments likely to steal a march on their competitors.
Rocketing rise
Rising GDP growth, an appreciating Rupiah, and a strong local equity market all contributed to increasing the dollar wealth of Indonesia’s affluent population over the review period; continued strong performance means the total number of HNWIs in Indonesia will increase rapidly in the years ahead.
Indeed WealthInsight projects that the total number of HNWIs in Indonesia will increase by a staggering 123% by 2016, reaching 83,500 individuals.
Looking further ahead to 2020, WealthInsight expects this number to rise to around 140,000 individuals.
Rapid growth in HNWIs will provide a substantial boost to Indonesia’s wealth management sector. According to WealthInsight Analyst, Andrew Amoils, "The Indonesian wealth management sector manages $16.6 billion in local HNWI assets.
"This equates to just 6.9% of Indonesian HNWI wealth, well below the global average of 25%, an indication of the huge scope for growth in Indonesian assets under management."
Islamic finance
With Indonesia boasting the largest Muslim population in the world, there is also significant potential for the expansion of Shariah-compliant financial services and products to the regions’ wealth sector.
Indonesia’s Islamic banking sector grew by 40% annually between 2008 and 2012, far outpacing growth in the conventional sector (16.7% a year).
By 2012 Indonesia’s Islamic finance assets were worth over $23 billion, driven by burgeoning consumer loan demand. This rapid growth will help the country’s Islamic finance industry catch up with neighboring Malaysia. Shariah compliant assets make up just 3.2% of Indonesia’s total banking assets compared with about 20% in Malaysia, the world’s largest sukuk issuer.
But while Islamic banking solutions are becoming increasingly accessible, there remain few viable Sharia-compliant alternatives aimed at HNWIs and their families.
WealthInsight’s finds the vast majority of Muslim HNWIs in Indonesia are not served by Islamic finance; generally they are limited to conventional private banking offerings, though they are increasingly expecting Shariah compliance in managing their wealth.
This mismatch leaves considerable scope for private banks to grow their client base. Standard Chartered Private Bank launched a suite of Shariah-compliant financial solutions for its Islamic clients in June this year to target this segment.
