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The number of Israeli millionaires grew at a clip nearly double that of the rest of the world in 2005, following a trend of sharp increases in emerging markets countries.
According to the 10th Anniversary World Wealth Report prepared by investment bank Merrill Lynch and consulting firm Capgemini, the number of Israelis with financial assets of $1 million or more rose by 12 percent to 7,400 last year as opposed to the global growth figure of just 6.5%.
"The increase in Israel's stock market and GDP over 2005 have been in line with other emerging markets, and this is reflected in the rise in number of Israeli HNWIs (high net worth individuals)," commented Ori Goldfarb, vice-president and head of private banking at Merrill Lynch Israel.
In addition, the number of Israeli multimillionaires - those with liquid assets over $30m. - soared by 20% to 84, with three Israelis entering the list of the world's 500 richest people, bringing the current total of Israelis included on the list to nine. The survey did not name and the firm declined to provide the those individuals.
Worldwide, the survey found a large discrepancy between the rise in Western millionaires and those from less developed countries. In the US, an increase in millionaires of only 6.8% was recorded, while in Britain the number rose just 7.3% and Australia added 8.5%. By comparison, South Korea saw a massive 21.3% rise in the number of domestic millionaires, while India's number jumped 19.3% and Russia gained 17.4%.
This incongruity is explained by the number of HNWIs who keep their investment portfolios geared to their domestic markets. This strategy means that "US HNWIs are missing out on the full benefit of gains posted overseas," said Capgemini's Bertrand Lavayssiere, in reference to the strong returns posted by emerging markets during 2005.
The fact that Israel straddles the boundary between developed countries and emerging markets gave the country its unique place in the report.
"Israelis' portfolios are much more diversified than, say, the US - where the average investor puts an astonishing 80% of their funds into domestic markets," commented Merrill's Goldfarb.
The World Wealth Report also found that HNWIs worldwide are steering clear of hedge funds of late, after two years of declining returns, and are allocating more money to private equity investments. The study also suggests that, in anticipation of higher future bond rates, funds are switching out of fixed-income instruments in order to take advantage of the expected better returns from the bond market.
These millionaires, the survey claims will get more aggressive in their investments over the coming year.
"Findings show that â€¦ high net worth individuals [will] decrease their cash/deposit and real estate positions, moving funds to equities and alternative investments" Merrill Lynch's Erik Hendrickson said.
Meanwhile, the report indicated that, based on interviews with HNWIs and their investment managers, investment in real estate was expected to ease over the coming year as worries persist that interest rates will rise and cause a downturn in the sector.