Merrill Lynch and Capgemini Release 12th Annual World Wealth Report

Business Wire, June 24, 2008

Market Capitalization Growth Explodes in Emerging Markets

With a significant portion of HNWI wealth invested in stock markets, market capitalization performance is an important determinant of HNWI wealth generation. While traditional United States, European, and Asian stock market indexes experienced moderate growth, many emerging markets extended winning streaks of robust gains. Various Dow Jones Market Indexes, for example, had moderate returns in 2007, averaging 6.8 percent, far below the 17.3 percent average in 2006, and compared to 2006, market gains in 2007 failed to have as positive an impact on HNWI wealth generation.

Most major European and Asian indexes were contained to low single-digit growth; the world's worst performer, the Nikkei 225, contracted 11.1 percent, while Europe's best performer, the German DAX, was the only major traditional index to outpace its 2006 performance and sustain double-digit growth.

Fueled mostly by organic price increases, the Shanghai and the Shenzhen Stock Exchanges grew at 303 percent and 244 percent, respectively. India's Bombay Exchange and National Stock Exchange had respective growth rates of 122 percent and 115 percent.

"The divide between market capitalization growth in mature and emerging economies was significantly more pronounced in 2007 than in previous years," said Bertrand Lavayssiere, Managing Director, Capgemini Global Financial Services. "Despite slowdowns in the growth of traditional stock exchanges and significant market volatility, several emerging market exchanges experienced robust gains in 2007, further accelerating global wealth."

Record Wave of IPOs, Other Investments Draw HNWIs to Emerging Markets

Emerging markets made significant contributions to record-level worldwide IPO activity in 2007. More than 1,300 IPOs raised about US$300 billion during the year--and emerging markets captured 7 of the top 10 issues. The BRIC nations exhibited particular strength in the area, accounting for 39 percent of global IPO volume in 2007, up from 32 percent in 2006.

Net private capital flows to emerging markets also increased in 2007. China attracted the largest absolute amount of private capital in 2007 at a country level, drawing in about US$55 billion. Emerging Europe was the most popular regional destination, attracting US$276 billion. Emerging Asia experienced a 20 percent drop in private capital flows, reflecting, in part, that equity flows helped policymakers accumulate foreign exchange reserves, which reached roughly US$1 trillion in China alone. Private capital flows to Latin America, however, more than doubled to US$106 billion in 2007.

Overall, hedge funds performed well in 2007 with average gains reaching 12.6 percent, down only slightly from 2006. Hedge fund returns outperformed traditional stock indexes in 2007, boosted by 20.3 percent average gains in emerging markets. In recent years, an increasing proportion of hedge fund assets have come from institutional investors, versus wealthy clients, shifting the main driver of the industry's growth.