Oct. 13 (Bloomberg) -- The ranks of millionaires in the Asia-Pacific region thinned by 14 percent last year as a stock market rout eroded wealth, according to a report by Capgemini SA and Merrill Lynch Wealth Management.

The number of people in the region with at least $1 million in financial assets, excluding their primary residences, slipped to 2.4 million as the global economy slowed and financial markets declined, the firms said in their fourth annual Asia-Pacific Wealth Report today. The value of assets held by the region’s millionaires slid 22 percent to $7.4 trillion.

While Asia’s rich got burned by last year’s record 42 percent drop in the MSCI World Index, the report said growth in the region’s wealth will outstrip the global average as its economies outperform. In China, whose economy grew 9 percent last year even as the U.S. and Europe slipped into recessions, the combined riches of millionaires overtook that of the U.K. to rank fourth, according to Capgemini and Merrill.

“The region’s economies are showing signs of recovery and are forecast to grow at a faster pace than the global economy by 2010,” according to the statement. “China and India are likely to lead high-net-worth-individual growth in Asia-Pacific, underpinned by robust domestic consumption and a growing number of affluent individuals.”

The number of millionaires in China dropped 12 percent to 364,000 and the value of their assets shrank 21 percent to $1.7 trillion. India was the region’s only country to post growth in average wealth, the report said.

Battle for Share

Expectations that Asian wealth will accumulate faster than in other regions have touched off a race among global banks to woo millionaires there.

HSBC Holdings Plc, Europe’s largest bank, said this month it plans to focus on emerging markets for any acquisition targets in wealth management. The London-based bank is studying a bid for ING Groep NV’s private banking operations in Asia, people with knowledge of the matter have said. Singapore-based Oversea- Chinese Banking Corp. said today it’s in talks with ING about a possible acquisition.

“The international banks will generally still have the key market share because to be able to service these high-net-worth individuals, you would need the global network and execution capabilities,” said Kong Eng Huat, Head of South Asia advisory at Merrill’s wealth management unit.

Japan’s population of millionaires fell 9.9 percent to 1.37 million while their wealth contracted 17 percent to $3.2 trillion. Hong Kong experienced the biggest decline in the world, with the number of millionaires plunging 61 percent to 37,000, Capgemini and Merrill said.

$14 Trillion Haul

The firms forecast the combined wealth of Asia-Pacific millionaires will increase 8.8 percent annually until 2018, compared with a global average of 7.1 percent. The riches of millionaires in China and India may grow by more than $4 trillion over the next decade, they said.

As stock markets tumbled, cash holdings rose to 29 percent of overall financial investments from 25 percent the previous year while the allocation to equity dropped 3 percentage points to 23 percent.

“Asia-Pacific high-net-worth individuals increased their allocations to safer and simpler investments last year in a move to preserve wealth,” the report’s authors said in a statement.

With equities recovering, rich investors in the region are moving back into shares and fixed-income investments, said Kong The MSCI Asia-Pacific Index has risen 33 percent this year.

Wealth management firms surveyed said their main challenges were enticing clients to buy more high-margin products and “handling overall liquidity pressures,” according to the survey.

To contact the reporter on this story: Joyce Koh in Singapore at jkoh38@bloomberg.net

Last Updated: October 13, 2009 01:57 EDT