People walk past an advertisement for a luxury watch brand in a shopping center in Hong Kong earlier this year. The city's retail sector has seen its sales value plummet since late last year, especially in luxury items, as the financial crisis shrank many people's personal wealth. Bloomberg News

HONG KONG: The number of people in the city with net assets of more than $1 million shrank 61.3 percent last year, the biggest fall anywhere in the world, according to the latest annual world wealth report by Merrill Lynch and Capgemini.

As volatile market conditions whittle down the fortunes of the city's rich, Hong Kong's population of high-net-worth individuals (HNWIs), who own net assets of at least $1 million, dropped to 37,000 in 2008, the report showed.

"In Hong Kong, where the HNWI population is concentrated in the $1 million to $5 million wealth band, many of these individuals saw their wealth fall below the $1 million mark last year because of challenging market conditions," said Francis Liu, market managing director for Greater China at Merrill Lynch Global Wealth Management.

The report, released yesterday, said Hong Kong is unique in that it is a developing economy with an extremely high market-capitalization-to-nominal-GDP ratio of 5.76.

The ratio indicates that Hong Kong is particularly vulnerable to large market capitalization declines like the one experienced in 2008. By contrast, the ratio is 1.49 for Singapore and 0.83 for the US, the report added.

On the mainland, the number of millionaires dropped 11.8 percent to 364,000. However, the country surpassed the UK to become the fourth-largest millionaire population in the world.

"China was a bright spot in the global economy last year and robust growth helped its HNWI population avoid some of the steep declines seen elsewhere," Liu said.

The market volatility in 2008 has slashed the combined wealth of the world's millionaires by 19.5 percent, dropping to $32.8 trillion.

Individuals with net assets of at least $1 million have dropped 14.9 percent to 8.6 million, while those with net assets of at least $30 million, named as ultra high net worth individuals in the report, have also tumbled 24.6 percent because of the extensive losses in financial wealth.

Bertrand Lavayssiere, managing director of global financial services at Capgemini, said they are seeing a shift in financial activity and priorities among millionaires, after a year of significant volatility.

"There are currently opportunities for wealth management firms and advisors to understand and effectively address increased client concerns by helping to navigate through the uncertain economic times and build relationships that will continue well into the future," Lavayssiere said.

The report also found that millionaires have reduced their exposure to equities across the globe, while increasing the proportion of their assets in safer and simpler investments, with more allocations to fixed-income securities, cash and liquid assets.

"As markets recover, they (the millionaires) will have the flexibility to readjust their strategies and reinvest in new, developing opportunities along the way," said Dan Sontag, president of Merrill Lynch Global Wealth Management.

(HK Edition 06/26/2009 page3)