Global wealth pullback to set stage for growth

Global wealth pullback to set stage for growth

Global wealth pullback to set stage for growth

The latter-quarter turbulence and declines in financial markets last year were a rude awakening for investors and financial professionals everywhere, inducing particularly sharp pain among those whose wealth hinges on stock-market exposure. But the world will likely soon put that episode behind it.

In its new report titled Global Wealth 2019: Reigniting Radical Growth, Boston Consulting Group (BCG) noted that 2018 was the worst year for stocks in a decade, with major indexes plummeting by as much as 20%. Consequently, global personal financial wealth came to a near-standstill, growing by just 1.6% to US$205.9 trillion — sharply lower than the 7.5% recorded the year before, and far below the CAGR of 6.2% observed from 2013 to 2017.

“Declines in equities and investment funds had a ripple effect on wealth across segments and regions, most notably among HNW individuals in North America and Western Europe,” the firm said, highlighting the regions’ high concentration of equity-rich portfolios.

While the last year was definitely a black mark, it only represented a stumble in a remarkable years-long run. Analyzing the past five years, BCG said that investable assets — including direct equity investments, mutual funds, debt securities, and bonds — saw a CAGR of 5.5%, now accounting for 59% (US$122 trillion) of all personal financial assets. Non-investable financial assets such as life insurance, pension funds, and equity in unlisted companies make up 41% (US$84 trillion).

Looking at different regions in 2018, the firm found a sharp pullback in wealth growth across most mature markets, with North America seeing a 0.4% decline in personal wealth from the stock-market correction. Mixed results in rapidly developing markets, notably Asia excluding Japan, led to decelerated asset growth from 11.5% in 2017 to 7.1% in 2018; that was led by China, whose wealth accounts for 57% of all assets in the region. Personal financial wealth increased by 6.8% in Eastern Europe, while the overall wealth in the Middle East increased by 5.7% in part due to global trend-bucking positive performance in stock markets across the Arabian Peninsula. Africa saw wealth growth of 8.9% year-on-year, while Latin American wealth jumped by 6.3%.

“The number of millionaires (in US dollar terms) grew by 2.1% year on year to 22.1 million in 2018,” the report said, noting that such individuals now hold a combined 50% of personal financial assets across the planet. North America retained its long-standing status as haven to the greatest concentration of millionaires, while Asia excluding Japan is expected to have the fastest-growing millionaire population from 2018 to 2023.

Individuals around the world have also ascended into higher wealth bands due to increased prosperity. The affluent segment, with assets between US$250,000 and US$1 million, saw 3.8% CAGR from 2013 to 2018; they now comprise 16.2% of global wealth. Lower HNW individuals, whose assets fall within the US$1 million-US$20 million range, hold 31% of total wealth, while upper HNW individuals with assets between US$20 million and US$100 million, represented 7%. Ultra HNW individuals, whose fortunes exceed US$100 million, made up 12%.

“Of these, the upper HNW tier is likely to see the greatest increase from 2018 to 2023, with an expected CAGR of 8.6%,” the report said.

Generating a base case from macroeconomic and market indicators, BCG predicted that worldwide wealth will increase by a CAGR of 5.7% from 2018 to 2023. A high concentration of equities, coupled with the likelihood of continued positive growth in Canadian and US capital markets, is expected to drive North American wealth forward by 5.4% CAGR to a final total of US$118 trillion by 2023.

 

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