The FINANCIAL – On September 27, Allianz unveiled the eighth edition of its "Global Wealth Report", which puts the asset and debt situation of households in more than 50 countries under the microscope.
2016 was politically a very turbulent year, but private wealth shrugged it off: After a weaker 2015 (+4.7 percent), financial assets grew again by 7.1 percent last year, more or less matching the post-crisis average. Worldwide, financial assets climbed to a new record high of almost 170 trillion euros.
Stock markets fuel growth – but savers prefer to put their money into banks
Last year's good performance owed a lot to the year-end rally on stock markets, in particular in industrialized countries. Almost 70 percent of asset growth last year was attributable to changes in the value of portfolios, only 30 percent was due to original savings; the year before, it was the other way round.
The composition of fresh savings is quite surprising. Private savers sold more securities than they bought but poured as much as two-thirds of fresh funds into banks – a new record high. “The saving behavior of private investors is still decidedly risk-averse”, said Michael Heise, chief economist of Allianz. “While financial assets grew over the last few years mainly thanks to the good performance on securities markets, new money is mostly put into bank accounts, not least in industrialized countries. But here, they not only generate no returns but actually suffer real losses: In 2016 alone, savers are thought to have lost around 300 billion euros owing to inflation; this year, with rising inflation, the figure might be twice as high. For decision makers in the financial industry, the economy and politics, solving this paradox is one of the biggest challenges in the coming years: How can we create the backdrop that households not only save, but invest, with a long-term horizon and decent returns? Against the backdrop of the necessary build-up of old-age provisions on the one hand and the need to increase real investments in our economy on the other, we are not making the most of the chances global financial wealth offers.”
Asset growth accelerates in industrialized countries
Last year's acceleration in growth came mostly from industrialized countries, where asset growth doubled to 5.2 percent. However, Asia (excluding Japan) was once again the uncontested leader in 2016, with growth of 15 percent. In a long-term comparison, too, Asia (excluding Japan) is the dominant region, particularly when inflation is also taken into account. Gross per capita financial assets in Asia (excluding Japan) grew by almost 11 percent per year in real terms in the last decade.
The other two emerging regions, Latin America and Eastern Europe, achieved growth of only about 5 percent, which was still more than twice as fast as the growth rates in North America (+2.1 percent real growth since 2006) and Western Europe (+1.4 percent).
As a consequence, the three regions of Latin America, Eastern Europe and Asia (excluding Japan) accounted for just under 23 percent of global gross financial assets in 2016. This share has more than doubled over the last ten years. Emerging markets have an even bigger weighting when it comes to asset growth, with 42 percent of the last decade’s growth attributable to this group of countries. However, this is largely due to the development in China, which alone accounted for roughly 30 percent of global growth since 2006.
Debt is growing faster than the economy
Global household liabilities increased by 5.5 percent in 2016, the highest rate of growth since 2007. That means that debt also rose faster than nominal economic output for the first time since 2009, and the global debt ratio increased by almost 1 percentage point to 64.6 percent. The picture varied widely between individual regions.
Growth accelerated slightly – starting from a moderate level – in Western and Eastern Europe and in North America. Latin America experienced a further decline in growth. In Asia (excluding Japan), on the other hand, debt growth rose sharply by a further four percentage points to just under 17 percent; at the top were Chinese households which ratcheted up their liabilities by a whopping 23 percent. That means that this region accounts for almost 20 percent of global private liabilities of just under 41 trillion euros, compared with less than 7 percent ten years ago.
“The debt situation in China should be closely monitored,” commented Michaela Grimm, co-author of the report. “Although the debt ratio of households is not yet in the danger zone, dynamics are alarming: The ratio jumped by 17 percentage points in the last five years, and by almost six points in 2016 alone – both figures are globally outstanding. Just to compare: In the five years prior to the Great Financial Crisis, the debt ratio in the USA increased by roughly 20 percentage points. The Chinese supervisors should not make the mistake to believe that China would be immune to a financial crisis; timely countermeasures would be better.”
Despite the steep rise in debt, net financial assets – gross financial assets minus debt – reached a new global record high of 128.5 trillion euros at the close of 2016. That represents an increase of 7.6 percent year-on-year. Although this is slightly below average for the years since the crisis, it is well above the previous year's growth of 4.8 percent.
U.S. at the top for the first time
At the top of the list of the 20 richest countries (net financial assets per capita, see table), a changing of the guard occurred in 2016, with the United States capturing the top spot from Switzerland.However, its lead is razor-thin and some of the credit goes to a stronger dollar.
Japan managed to retain the third position – thanks to a statistical revision which reduced household debt by almost a fifth.Otherwise, the list gives the now usual picture, with Scandinavian and Asian countries dominating. There is in fact only one country from the eurozone still included in the Top 10 in both lists (net and gross): the Netherlands.
Global wealth distribution slowly evening out
Development of global wealth distribution since the turn of the millennium has been defined by one phenomenon in particular: rampant growth in the global wealth middle class. The number of people belonging to this category has more than doubled during this period, from around 450 million in 2000 to over 1 billion today. The vast majority of those joining the middle class have come from the wealth lower class, with almost 600 million people making the leap since 2000.
Despite the emergence of a new global wealth middle class, the world as a whole is still a long way from a “fair” distribution of wealth. If we divide the population of the countries we have analyzed into global population deciles based on net per capita financial assets, it becomes clear that the richest 10 percent of the world together own 79 percent of net financial assets. Nevertheless, the concentration of wealth was still as high as 91 percent in 2000.