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Wealth in the Brazil: Sizing the Market Opportunity

  • April 2016
  • -
  • Verdict Financial
  • -
  • 36 pages

Summary
It is a torrid time for the Brazilian wealth market. The country is in the depths of an enduring economic recession; with no immediate end in sight growth in the Brazilian wealth market is set to slow noticeably. Underlying this is deceleration in growth of the retail savings and investments market; equities in particular have plummeted thanks to the ongoing poor performances of the Bovespa since 2013. With such uncertainty, it is no surprise that local HNW individuals choose to hold almost 20% of their portfolio overseas. Yet Brazil is tightening up on offshore holdings, with individuals now required to report foreign assets and wealth over $100,000 to the Brazilian central bank.

Key Findings
- Affluent individuals represent just 1% of the Brazilian population but hold 94% of the country's liquid assets.

- Deposits and mutual funds dominate the retail savings and investments market, accounting for 88% of the market.

- Growth in the retail savings market is slowing considerably thanks to considerable economic uncertainty. Deposits are forecast to grow by just 2.9% from 2015 to 2019, compared to 9.4% between 2010 and 2014.

- Brazilian HNW investors hold 24% of their assets in alternative, commodity, and property assets, with local hedge funds accounting for the vast majority of this.

- The economic situation is leading to notable changes in the tax regime, with capital gains tax and inheritance tax rates increasing, as well as the mooted introduction of a financial transaction tax. Brazil is also introducing a tax amnesty for offshore assets.

Synopsis
Verdict Financial's “Wealth in Brazil: Sizing the Market Opportunity” analyzes the Brazilian wealth and retail savings and investments markets, with a focus on the HNW segment. The report is based on our proprietary datasets. Specifically the report:Sizes the affluent market (both by number of individuals and value of their liquid assets) using our proprietary datasets.

- Analyzes which asset classes are favored by Brazilian investors and how their preferences impact the growth of the overall savings and investments market.

- Examines HNW clients' attitudes towards non-liquid investments such as property and commodities.

- Identifies key drivers and booking centers for offshore investments.

Reasons To Buy
- Benchmark your share of the Brazilian wealth market against the current market size.

- Forecast your future growth prospects using our projections for the market to 2019.

- Identify your most promising client segment by analyzing penetration of affluent individuals in Brazil.

- Evaluate your HNW proposition by understanding how changing Brazilian tax systems will impact HNW clients.

- Review your offshore strategy by learning HNW motivations for offshore investments and their preferred booking centers.

Table Of Contents

Wealth in the Brazil: Sizing the Market Opportunity
Table of Contents
EXECUTIVE SUMMARY
The Brazilian wealth market is charting a turbulent course
Key findings
Critical success factors
SIZING AND FORECASTING THE BRAZILIAN WEALTH MARKET
The onshore wealth market is highly concentrated at the top end
Affluent individuals account for 1.0% of the population
The Brazilian wealth market is heavily concentrated, with the affluent holding around 94% of total liquid assets
DRIVERS OF GROWTH IN THE BRAZILIAN WEALTH MARKET
Brazil's retail savings and investment market will suffer in the short term
The recession will hamper growth in the retail savings and investment market
Growth in the cornerstones of the market will slow
Retail deposits will follow GDP and are expected to contract in 2016
Interest rates reached double digits in 2015, as did inflation
Direct bond holdings are correlated to real GDP growth rates
The collapse in the Bovespa's performance will limit growth of mutual funds and equities
Direct equity investment is well correlated to the fortunes of the Bovespa
HNW INVESTMENT PREFERENCES
Brazilian HNW individuals allocate 24% of their portfolios into alternative and property assets
Brazilian HNW individuals invest heavily in hedge funds
Brazilian HNW individuals hold small levels of commodity investments
Brazilian property returns have been stellar but are set to fall
Brazilian HNW individuals have an increasing appetite for offshore allocation
Offshore wealth is most commonly held in the US
Local economic and political instability are the biggest drivers for offshore investments
Tax is a comparatively limited driver for offshore investments
APPENDIX
Abbreviations and acronyms
Supplementary data
Definitions
Affluent
Domicile
DTA
FATCA
HNW
Liquid assets
Mass affluent
Onshore
Residency
TIEAs
Methodology
Global Wealth Model methodology
Global Retail Investments Analytics methodology
Verdict Financial's 2015 Global Wealth Managers Survey
Bibliography
Further reading
About Verdict Financial
Disclaimer

List of Tables
Table 1: Brazil's DTAs as of November 2015
Table 2: Brazilian income tax rates, April-December 2015
Table 3: Brazil: total liquid wealth ($bn) segmented by affluent category and asset band, 2009-14
Table 4: Brazil: total liquid wealth ($bn) segmented by affluent category and asset band, 2015-19f
Table 5: Brazil: adult population (000s) segmented by affluent category and asset band, 2009-14
Table 6: Brazil: adult population (000s) segmented by affluent category and asset band, 2015-19f
Table 7: Brazilian real-US dollar exchange rate, December 31, 2014 and December 31, 2015

List of Figures
Figure 1: Affluent individuals accounted for 1% of the population in 2015
Figure 2: Affluent Brazilians will continue to hold around 95% of liquid assets
Figure 3: The recession will cause a contraction in the Brazilian retail savings and investment market in 2016
Figure 4: Total retail savings and investments will exceed $600bn in 2019
Figure 5: Slower growth is forecast for mutual funds and deposits from 2015
Figure 6: Deposit growth is strongly linked to real GDP growth and will contract in 2016
Figure 7: Direct bond growth will shadow GDP from 2016
Figure 8: While mutual fund growth rates will slow in relation to GDP, equities are expected to recover strongly
Figure 9: Alternative assets form an important part of Brazilian HNW portfolios
Figure 10: Brazilian HNW individuals held almost 20% of their assets offshore in 2015
Figure 11: The US accounted for over 55% of Brazilian HNW offshore assets in 2015
Figure 12: Economic and political instability are the key drivers of offshore investment among Brazilian HNW individuals
Figure 13: Global DTAs and TIEAs signed with Brazil, 2015

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