Global wealth pullback to set stage for growth

Despite recent challenges, overall prosperity has increased and wealth will continue to rise modestly

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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