World's Billionaires List: Indonesia Edges Out Japan

There are more billionaires now in Indonesia than in Japan

From Wall Street Journal

Forbes Indonesia’s latest list of the country’s richest people, released this week, sets its billionaire tally at a record 32 people and families, edging out Japan, which Forbes says is home to 28 billionaires. Last year Indonesia had 26 billionaires, according to Forbes’ calculations.

While the archipelago’s crowd of coal magnates was hit hard by a plunge in coal prices, the commodities collapse was more than offset by the growing wealth of the people behind the country’s top retail, media, banking, food and tobacco companies.

Many may read this as signs of relative prosperity in favor of Indonesia. Perhaps.

But the important question to ask is what has served main foundation for the ballooning wealth class? Has it been economic freedom, cronyism or monetary induced bubbles?

From the same article,

While a lack of public disclosure can make it difficult to estimate exact wealth, Indonesia’s bulging batch of billionaires shows that family fortunes have been largely protected across the archipelago even as most of the world struggles with a slowdown.

And though Indonesia’s billionaires club is still smaller than the ranks in China (more than 100 billionaires) and India (more than 50 billionaires), with less.

It is not clear what “family fortunes have been largely protected across the archipelago” really means. Cronyism perhaps?

Although, the Indonesian government appears to have adapted more business friendly policies, economic freedom has been substantially been improving since 2008 (Heritage Foundation)

Also, Indonesia has embarked on genuine fiscal reforms since the Asian crisis. 

Indonesia’s government debt to GDP ratio has been pared to only 25% from 67.8% in 2008.

On the other hand, Indonesia’s economy has likewise been experiencing a credit boom from easy money policies.

Domestic loans have picked up substantially over the recent years, but still have been significantly below the levels of the Asian crisis (both charts above from tradingeconomics.com)

Nevertheless, the methodology used to arrive at the respective wealth estimates are from stakes held by these billionaires of publicly listed companies and for non-publicly listed private firms, indirectly through comparisons with publicly listed contemporaries.

And from such perspective, we can see from the charts below why Indonesia has overtaken Japan.

Charts of Indonesia’s JKSE and Japan’s Nikkei from Chartsrus.com

Indonesia’s JKSE has been skyward compared to Japan’s seemingly perpetual stagnation post bubble bust of the early 90s 

The jury is out on whether Indonesia’s recent gains has emanated mostly from either increased productivity due to a freer economy or from monetary policy induced bubbles.

Admittedly, economies are complex such that three factors (market economy, cronyism and monetary bubbles) may simultaneously be in operation, the point is which among them is likely the bigger force or influence.

Has Swelling Numbers of Asian Millionaires Been Symptomatic of Wealth Transfer?

We’ve been talking about wealth transfer, i.e. from the West to the East. And perhaps, this could be a sign. A report says, Asian's have nearly caught up with the west in the race of High Net Worth Individuals (HNWI).

According to Bloomberg,

``The number of individuals with at least $1 million of investable assets in Asia-Pacific rose 26 percent to 3 million in 2009, matching Europe and almost overhauling North America’s 3.1 million, according to the 14th annual World Wealth Report published yesterday.

``Asia “continues to lead the global economic recovery and this has benefited many of the markets in the region in terms of both growth and wealth creation,” Ong Yeng Fang, market managing director for Indonesia, Philippines and Thailand at Merrill Lynch Wealth Management, said at a conference in Singapore today. Given Europe’s debt crisis, “there is a very high possibility that their numbers will be surpassed.”


To add, the Capgemini-Merrill report says: (bold highlights mine, graphs from Capgemini)

-The Asia-Pacific HNWI population rose 25.8% overall to 3.0 million, catching up with Europe for the first time, after falling 14.2% in 2008. Seven countries within the region actually saw their HNWI populations recover beyond 2007 levels.



-Asia-Pacific HNWI wealth surged 30.9% to US$9.7 trillion, more than erasing 2008 losses and surpassing the US$9.5 trillion in wealth held by Europe’s HNWIs.

-After falling 19.0% in 2008, the HNWI population in North America rebounded, gaining 16.6% in 2009. HNWI wealth there rose 17.8% to US$10.7 trillion. North America remains the single largest home to HNWIs, with its 3.1 million HNWIs accounting for 31% of the global HNWI population

For us, the reason Asia has been fast catching up with the west is that she has been engaged in less relative inflationism, which has been embraced by the west as the orthodoxy. But of course, everything is fluid or subject to change.

How Asia's Richest Fared In 2008

Some interesting charts and commentaries on the wealth conditions of Asia's Richest in 2008 from Capgemini's Asian Wealth Report 2009.

Here are the highlights (bold highlights mine)


``Asia-Pacific’s population of high net worth individuals (HNWIs1 ) shrank 14.2% in 2008 to 2.4 million, while their wealth dropped 22.3% to US$7.4 trillion.



``The HNWI population and its wealth were even more concentrated by the end of 2008 than they had been a year earlier. Japan and China together accounted for 71.9% of the Asia-Pacific HNWI population and 65.8% of its wealth, up from 68.8% and 62.4% respectively.


``Asia-Pacific’s Ultra-HNWIs2 suffered greater losses of wealth than Ultra-HNWIs in other regions and their population also diminished by more. At the end of 2008, Asia-Pacific’s Ultra-HNWI population was down 29.6% from a year earlier, compared with the global decline of 24.6%, and their wealth was down 35.1% vs. 24.0% globally."

Additional observation:

The chart below decomposes on the financial assets held by the High net worth individuals.


A noteworthy observation is that except for India, South Korea and Australia, the cash component of the financial assets of High Net Worth Individuals in the region have the largest share in terms distribution.

India on the other hand has equity exposure as the largest, while South Korea and Australia are substantially into real estate.

It would be interesting to see how these huge share of cash holdings would respond to "inflationary setting", which we expect would likely boost property and or stock markets.


Importantly, the Capgemini report highlights on the regulatory conditions and how it impacts on the general business environment.

The report cites some strategic disadvantages in select Asian economies as the Philippines, Vietnam and Japan.

Again Capgemini (all bold highlights mine)

``Tough’ markets (Japan, Vietnam and Philippines) have the tightest regulations in the region and are difficult to penetrate. Japan, for instance, has historically been a very tough market for Western banks as the market is dominated by local players. Foreign banks can emphasize their global reach and product expertise, but lack the branch networks and local resources of their Japanese rivals. The local wealth management segment has always been short of expert capabilities, products and services, but foreign players are still unable to win the complete trust and confi dence of Japanese clients. Foreign banks did get somewhat of a respite recently when the Financial Services Agency (FSA) eased regulations regarding how banks can interact with their securities arms. Previously, banks had been barred even from recommending services among sister divisions. The new regulation presents a major boost to foreign banks, which had been most disadvantaged by the regulation, as they lacked the same holding company structure as local banks.

``Regulations in Vietnam and the Philippines are also stringent, making these markets tough to enter. Vietnam recently revised its credit law, and has put tough restrictions on credit and bank-equity ownership. Foreign banks are concerned this law could hamper their future growth plans in Vietnam. The Philippines also puts substantial limits on the local operations of foreign wealth management firms, so many are largely operating from offshore locations."

Again overregulation has again served as a major deterrent or a significant barrier to investment flows.

You can read a summary of the report from Finance Asia here or read the entire report from Capgemini here (registration required)