Wednesday 06, December 2017 by Jessica Combes

Global wealth 30 per cent higher than a decade ago led by further US gains

 

Ten years from the onset of the global financial crisis, global wealth has grown by 30 per cent, according to Credit Suisse Research Institute’s 2017 Global Wealth Report.

In the 12 months to mid-2017, global wealth grew at a faster pace than in recent years, with mean wealth per adult reaching a new record high.

According to the eighth edition of the Global Wealth Report, in the year to mid-2017, total global wealth rose at a rate of 6.4 per cent, the fastest pace since 2012 and reached $280 trillion, a gain of $16.7 trillion. This reflected widespread gains in equity markets matched by similar rises in non-financial assets, which moved above the pre-crisis year 2007’s level for the first time this year. Wealth growth also outpaced population growth, so that global mean wealth per adult grew by 4.9 per cent and reached a new record high of $56,540 per adult.

“A decade since the start of the global financial crisis, we see a significant increase in wealth across all regions of the world. In our home market, Switzerland, wealth per adult has increased by more than 40 per cent during this period and continues to lead the global rankings. In this year’s edition of the Credit Suisse Research Institute’s annual Global Wealth Report, we explore the wealth prospects of the Millennial generation, which emerges from a more challenging period than its predecessors,” said Urs Rohner, Chairman of the Credit Suisse Research Institute and Chairman of the Board of Directors of Credit Suisse Group.

Key findings

  • This year’s report focuses in on Millennials and their wealth accumulation prospects. Overall the data point to a “Millennial disadvantage”, comprising among others tighter mortgage rules, growing house prices, increased income inequality and lower income mobility, which holds back wealth accumulation by young workers and savers in many countries. However, bright spots remain, with a recent upsurge in the number of Forbes billionaires below the age of 30 and a more positive picture in China and other emerging markets.
  • The US continued its unbroken spell of gains since the financial crisis, bolstered by strong market conditions. It added $8.5 trillion to the stock of global wealth, which is half of the wealth generated globally over the 12 months to mid-2017.
  • Stability in Europe enabled wealth growth of 6.4 per cent across the continent, in line with global wealth growth. Four Euro zone countries (Germany, France, Italy, Spain) made it to the top ten countries with the biggest gains in absolute terms. The UK market recovered after the losses caused by the Brexit vote last year but the outlook remains uncertain.
  • Switzerland once again ranked as the global leader in terms of both average and median wealth per adult in 2017.
  • Median wealth has risen in most regions, while remaining below the peak level of 2007. Only China has reached a new median wealth high. The top ten ranking by median wealth corresponds closely to the ranking by mean wealth, although lower-than-average inequality promotes Italy and Japan to a place among the top ten.
  • In the mid-term, emerging economies are expected to generate wealth at a more dynamic pace than their developed peers.
  • Among the wealth components, only financial assets are noticeably up since 2007; non-financial assets moved above the 2007 level for the first time this year and are now two per cent higher.
  • This century, debt grew at a fast pace (nine per cent) until the financial crises, but has been flat since then, never gaining the peak value achieved in 2007. Debt per adult is currently three per cent below the level of 2007.

Regional highlights:

MENA Region

In the MENA region wealth per adult net of debt increased by 1.9 per cent compared to the global average 6.4 per cent. Qatar recorded the highest wealth per adult of $102,517 in mid-2017, while Kuwait followed closely with $97, 300. However, while Kuwait saw its wealth per adult increase marginally by 1.4 per cent, Qatar witnessed a marginal drop of 0.2 per cent from mid last year. UAE placed third in the region with wealth per adult of $78,800, grew by 1.2 per cent since last year. Wealth per adult in Bahrain saw a steady increase of 2.7 per cent from mid last year to $30, 800. Wealth per adult in Saudi Arabia, the largest economy in the region, grew by 2.8 per cent touching $35, 000 while Egypt’s wealth per adult saw a massive drop of 50.2 per cent touching $3,200 pulled down by a drop in value of the Egyptian pound against the dollar.

However, in terms of total wealth (net of household wealth), Saudi Arabia ranked first with an estimated wealth of $772 billion, closely followed by the UAE with an estimated wealth of $603 billion. Kuwait and Qatar’s total wealth is estimated to be $292 billion and $218 billion respectively. Bahrain's net household wealth is estimated at $34 billion. Egypt’s total wealth declined to $178 billion this year, having peaked at $511 billion in 2010.

Total wealth in the MENA region grew by $2,221 billion or 156 per cent since 2000, above the global average of 140 per cent.

In the next five years household net wealth in the MENA region is expected to increase by a further 52 per cent, or nearly 8.8 per cent annually.

US led the gains in global wealth – but has it reached its peak?

Economic activity and US financial markets continued to perform well in the past year, driving a ninth successive year of rising wealth.

The US managed to add to the stock of global wealth $8.5 trillion, half of the total world’s gain of the last 12 months, driven primarily by stronger financial assets.

Comparing wealth gains across countries, the US was restored to its usual first place, with a gain five times the rise recorded by China ($1.7 trillion) in second place.

Today the country’s wealth is estimated at around $93.6 trillion, equivalent to 33 per cent of total global wealth. The US contributes the highest number of members of the top one per cent global wealth group, and currently accounts for 43 per cent of the world’s millionaires. Is this growth pace sustainable?

“So far, the Trump Presidency has seen businesses flourish and employment grow, though the ongoing supportive role played by the Federal Reserve has undoubtedly played a part here as well, and wealth inequality remains a prominent issue. Looking ahead, however, high market valuations and property prices may curb the pace of growth in future years,” said Michael O’Sullivan, CIO for International Wealth Management at Credit Suisse.

Europe - Stable growth one year after Brexit vote; UK outlook remains uncertain

Europe achieved the second highest absolute wealth gain among regions ($4.8 trillion) and recorded a growth rate matching the global figure of 6.4 per cent.

The UK had a tumultuous year after the vote to leave the EU, nonetheless wealth per adult rose 2 per cent in pounds sterling, although it fell 1 per cent in US dollars. The outlook is uncertain: owing to the impact of Brexit in the financial markets together with the expected depreciation of the British pound, the UK is projected to reduce its stock of wealth by 0.9 per cent in the next five years, when expressed in US dollars. This is mostly explained by a projected depreciation in the pound of four per cent by 2022.

Comparing wealth gains across countries, Euro zone’s strength is reflected by the wealth growth levels of Germany, France, Italy, and Spain which all made it to the top ten countries posting the biggest gains.

Together they accounted for $3.1 trillion, or almost 20 per cent of the total wealth gain worldwide. Converted into percentage terms, Poland tops the list with the biggest household wealth gain of 18 per cent. This was primarily driven by rising equity prices.

Switzerland still tops the ranking of the average wealth per adult. Since the turn of the century, wealth per adult in Switzerland has risen by 130 per cent to $537,600, largely associated with the appreciation of the Swiss franc against the US dollar between 2001 and 2013. The top ten in the wealth-per-adult league in 2017 also include five other European countries: Norway, Denmark, Belgium, the UK and France.

The Euro zone’s total wealth of $53 trillion in 2017 is comparable to the total wealth of the US at the end of the 1990s.

Key themes addressed in the Global Wealth Report include:

Millennials – the unlucky generation
The difficult start and adverse market conditions experienced by Millennials in their early adult years will most likely limit their wealth acquiring prospects. This generation was not only hit by capital losses from the global financial crisis, but faced first-hand the subsequent unemployment, increased income inequality as well as higher property prices, tighter mortgage rules, and in some countries, a considerable rise in student debt. They are also set to experience less access to pensions than their predecessors.

The wealth impacts of the global financial crisis and other issues facing the Millennials are shown, for example, by the fact that, according to the latest data for the US, the average wealth of those aged 30-39 ($72,400) in 2017 was 46 per cent below wealth at the same age of those who were 40-49 ($134,800) in 2017.

This same US data set hints that this inauspicious start has made Millennials more cautious about debt than their forerunners. Their debt to income ratio started out higher than their earlier cohorts, before declining as they apparently became more cautious following the crisis.

Some Millennials have prospered in spite of the difficulties faced, as reflected in the more positive picture seen of China’s Millennials alongside a range of other emerging markets. Although the numbers are still very small, there has also been a recent upsurge, in absolute terms, in the number of young billionaires.

The overall global outlook for Millennials, however, is that not only will they experience greater challenges in building their wealth in the future but will also continue to face greater wealth inequality than previous generations.

The global wealth pyramid
Typically, most attention is given to the two top tiers of the global wealth pyramid covering less than 10 per cent of the global population who collectively own 88 per cent of global wealth. The Credit Suisse Research Institute believes the lower tiers of the pyramid deserve more attention than they usually get. They represent 4.5 billion of adults–which translates to 90 per cent of the adult population–with unquestionable political power, as proved by last year’s and recent political developments. Also, their combined wealth of $46 trillion signifies considerable economic opportunities.

In the mid-range part of the pyramid, India and Africa are underrepresented, while China’s share is disproportionately high, having risen rapidly this millennium from 7.6 per cent in 2000 to 30 per cent today. The base tier of the pyramid, despite remaining the largest, shrank by three per cent compared to last year. It is now estimated to be occupied by 70 per cent of the global population. The base tier’s share in global wealth rose slightly in the past year, reaching 2.7 per cent as opposed to 2.4 per cent in 2016.

Trends in the number of millionaires
The number of millionaires globally has increased by 170 per cent, while the number of ultra-high net worth individuals (UHNWI) has risen five-fold, making them by far the fastest-growing group of wealth holders.

The composition of the millionaire segment is changing fast. In 2000 as many as 98 per cent of millionaires were heavily concentrated in high income economies. Since then, 23.9 million “new millionaires” have been added to the total, of whom 2.7 million–12 per cent of the total additions–originated from emerging economies.

The transformation is even more remarkable in the UHNWI segment. Emerging economies accounted for six per cent of the segment in 2000, but have claimed 22 per cent of the growth in UHNWIs (24,500 adults) since then. China alone added an estimated 17,700 adults–15 per cent of the new UHNWIs in the world.

By 2022 the number of UHNWIs will likely increase by 45,000 to reach 193,000 individuals.

Wealth outlook for the next five years
According to the report, global wealth should continue to grow at a similar pace to the last half a decade (3.9 per cent expected and 3.8 per cent recorded over last five years), albeit at a slower rate than the previously estimated 5.4 per cent. Based on this updated forecast, global wealth is anticipated to reach $341 trillion by 2022.

Emerging economies are expected to generate wealth at a faster pace than their developed peers and are likely to achieve a 22 per cent share in global wealth at the end of the five-year period. However, the pace of emerging economies’ wealth generation is slower than previously estimated. Unsurprisingly, the strongest contribution is expected from China and is estimated at around $10 trillion, an increase of 33 per cent.

The outlook for the millionaire segment is more optimistic than for the base tier of the wealth pyramid. The former is expected to rise by 22 per cent, from 36 million people today to 44 million in 2022, while the group occupying the lowest tier of the pyramid is expected to shrink only by four per cent.

Non-financial wealth will slightly outpace financial wealth by around one per cent annually in the next five years. Debt is also expected to grow at a faster pace than both financial and non-financial wealth in the coming years after a period of stability between 2007 and 2010. Household debt is expected to increase by 37 per cent in the next five years to reach 15 per cent of gross assets.

 

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