The U.S. is losing its market share of global millionaires.
The population of millionaires grew five times as fast in emerging markets as it did in the U.S. last year, according to a survey released Tuesday. That was the largest divergence between the U.S. and the big emerging markets since the comparisons were first published in 2003.
The number of millionaires in Brazil, Russia, India and China jumped 19% in 2007, compared with growth of 3.7% in the U.S., its slowest growth since 2002, according to the World Wealth Report, produced by Merrill Lynch & Co. and Capgemini.
The U.S. still dominates the millionaire economy world-wide. It has more than three million financial millionaires, defined as those with investable assets of $1 million or more. That's up 100,000 from 2006.
Yet emerging markets captured the bulk of the millionaire growth last year, with Brazil, China, India and Russia adding 133,000 new millionaires, for an 817,000 total. India's millionaire population grew 23% last year, the fastest in the world.
After climbing for years, America's market share of the world's millionaires declined slightly, to 30% in 2007 from 31% in 2006. Its share of millionaire wealth fell to 29% in 2007 from 31% in 2006, and is expected to fall further in the next five years, according to the report. Europe's market share of millionaires has fallen even faster in recent years, to 31% in 2007 from 36% in 2002.
Meanwhile, the millionaire market share for India, Brazil, Russia and China has increased to 8% from 6% in the past five years.
The numbers point to an economic reality: Tomorrow's rich are more likely to come from the East than the West.
The surge in oil and commodity prices, the shift in financial flows to faster-growing emerging markets, the higher savings rates abroad and the decline in the dollar have all fueled a boom in new millionaires and billionaires in countries once known for their extreme poverty.
At the same time, America's wealth-creation machine is sputtering because of the financial crisis, debt crunch and decline in real-estate prices.
Impact on Economies
While the market share of millionaires may seem trivial, it has ramifications for the global economy.
The increasingly Eastern face of wealth could reshape investment and spending in the U.S., as well as philanthropy and entrepreneurship. The more than $40 trillion held by the world's millionaires will move increasingly outside the U.S., since the new millionaires prefer to invest in their own countries. Investments by the world's millionaires in North America are expected to decline to 39% of all investments in 2009 from 42% in 2007, the report said.
The shift is also likely to accelerate economic inequality world-wide, since the fastest growth in millionaires and billionaires is occurring in countries with an even larger gap between rich and poor than in the U.S.
According to the World Wealth Report, wealth is becoming concentrated increasingly among the rich -- especially the superrich. The population of the superrich, or those with $30 million or more in investable assets, increased 8.8% last year globally, while their fortunes grew by a disproportionate 14.5%.
Indians already hold four of the top eight slots on the Forbes billionaire list, while Mexico's Carlos Slim has surpassed Bill Gates to claim the No. 2 spot. Warren Buffett is No. 1; Mr. Gates is No. 3.
India's Wealth
India was the biggest overall winner last year. Its population of millionaires surged by 23%, up slightly from a 21% rise in 2006. China saw growth of 21%, followed by Brazil with 19% and Russia with 14%.
The main drivers for wealth creation are gross-domestic-product growth, financial-market performance and liquidity. The flood of money pouring into overseas stock markets has created a boom in initial public offerings and stock that can be used for mergers.
That has fueled a rise in what private bankers call "liquidity events," where a company owner or executive can cash in his holdings to become a millionaire or billionaire.
"Financial markets are deepening in these countries, and that is allowing many entrepreneurs to capitalize their businesses," said Harvard economist Kenneth Rogoff.
The wealth shift is also redrawing the competitive map for the luxury economy and the vast array of companies that sell to the rich.
Sotheby's estimates Russian buyers of Impressionist and Modern art at its February auction in London accounted for 15% of sales, compared with 9% in 2007.
High on the Seas
Mega-yacht makers, once devoted largely to the U.S. and Europe, are now doing a brisk business in Russia, India and Brazil. Burgess, the yacht-brokerage firm, said that emerging markets will probably account for half of its business in five years, compared with about a third today.
"When it comes to the very big boats, India is the next Russia," says Jonathan Beckett, chief executive of Burgess.
Gulfstream, the private-jet maker, is deriving an increasing share of its growth from outside the U.S. For the first time in the company's 49-year history, orders for jets from North American buyers in 2007 were eclipsed by overseas buyers, even though North American orders were up 30%, a spokesman said.
In the first quarter of 2008, orders from overseas are outpacing North America by 56% to 44%.
Many of the new buyers are "unaccustomed to waiting," says Robert Baugniet, spokesman for Gulfstream, a subsidiary of General Dynamics Corp. "When somebody hears the G550 they ordered won't be delivered until the first quarter of 2013, they rattle their briefcase full of cash and don't understand why they have to wait."