Global Wealth 2013: Maintaining Momentum in a Complex World

          
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Global Wealth 2013: Maintaining Momentum in a Complex World

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    Market Sizing: A Rebound Year

    Global private financial wealth grew by 7.8 percent in 2012 to reach a total of $135.5 trillion. (See Exhibit 1.) The rise was stronger than in either 2011 or 2010, when global wealth grew by 3.6 percent and 7.3 percent, respectively.

    exhibit
    Private financial wealth includes cash and deposits, money market funds, listed securities held directly or indirectly through managed investments, and other onshore and offshore assets. It excludes investors’ own businesses, residences, or luxury goods. Global wealth reflects total financial assets across all households. Unless stated otherwise, wealth figures and percentage changes are based on local totals that were converted to U.S. dollars using year-end 2012 exchange rates for all years in order to exclude the effect of fluctuating exchange rates.
    Global Overview

    The growth of private wealth varied considerably by region in 2012, as in previous years, once again highlighting the differences in how the year’s economic forces affected the traditional, mature economies of the “old world” and the rapidly developing economies (RDEs) of the “new world.” Wealth increased measurably in the old-world regions of North America, Western Europe, and Japan, while stronger, double-digit growth characterized the new-world regions of Asia-Pacific (excluding Japan), Eastern Europe, and Latin America. Wealth in the Middle East and Africa (MEA) saw near-double-digit growth.

    Overall, private wealth grew by 5.9 percent in the old world in 2012 (representing just over half of the total increase in global wealth), compared with 12.9 percent growth in the new world. (See Exhibit 2.) In terms of newly created wealth—stemming primarily from rises in gross domestic product (GDP), income, and savings rather than from returns on existing wealth—the old world accounted for roughly one-third of the increase in global wealth, with the new world accounting for roughly two-thirds.

    exhibit

    North America and Western Europe remained the wealthiest regions in 2012, with total private wealth of $43.3 trillion and $35.8 trillion, respectively. Asia-Pacific (excluding Japan) was the third-largest market, with wealth of $28.0 trillion. Growth in overall wealth in 2012 amounted to nearly $10 trillion, from $125.7 trillion in 2011 to $135.5 trillion in 2012.

    Unlike in 2011, the principal driver of the rise in global private wealth in 2012 was the strong rebound in equity markets in most countries, particularly during the second half of the year. In 2012, the S&P 500 rose by 13.4 percent, the Nikkei 225 by 22.9 percent, and the Euro Stoxx 50 by 13.8 percent. Strong stock returns allowed existing assets to contribute far more than usual to the overall growth in wealth, particularly in mature markets. Only a few countries suffered equity market losses, among them European countries such as Spain and Slovakia and MEA countries such as Qatar, Morocco, and Bahrain. The drivers of stronger equity markets included generally supportive monetary policies by central banks (notably in Europe with regard to the euro) and a measure of economic clarity after national elections in countries such as the U.S., Japan, China, France, and Russia.

    The proportion of assets held in equities gained 1.5 percentage points to reach 33.9 percent globally in 2012—still 4.8 percentage points below the precrisis level of 38.7 percent. The amount of private wealth held in equities grew globally by 12.6 percent in 2012 to $45.9 trillion, compared with 3.5 percent growth in bonds (to $27.6 trillion) and 5.7 percent growth in cash and deposits (to $60.8 trillion). Currency fluctuations had only a minor impact on the change in wealth as measured in U.S. dollars.

    Growth in private wealth was also strongly driven by savings as a percentage of GDP. This effect was especially noticeable in the new world, where savings rates are high. Additionally, high nominal GDP growth rates in RDEs, particularly in India (12.8 percent) and China (11.4 percent), stimulated wealth creation. The BRIC countries as a whole achieved average nominal GDP growth of 10.8 percent in 2012.

    Looking ahead, global private wealth is projected to post a compound annual growth rate (CAGR) of 4.8 percent over the next five years to reach $171.2 trillion by the end of 2017. Wealth will continue to grow more rapidly in the new world—at a projected CAGR of 10.5 percent over the next five years compared with 2.1 percent in the old world—driven mainly by high savings rates and continued strong GDP growth in RDEs. The share of private wealth held in the old world will shrink from 71 percent in 2012 to a projected 62 percent by the end of 2017, with the share held in the new world rising from 29 percent to a projected 38 percent.

    Overall, the Asia-Pacific region (excluding Japan)—and especially its new wealth—will account for the bulk of the increase in global wealth through 2017. (See Exhibit 3.) In fact, the projected growth in wealth in the new world through 2017 will be driven primarily by new wealth creation. By contrast, projected growth in the old world—where both GDP growth and savings rates are projected to be lower than in the new world—will depend more on the returns on existing assets. Globally, new wealth creation will account for approximately 80 percent of the total growth in wealth through 2017, assuming moderate asset returns.

    exhibit

    As a result, wealth managers in the old world will largely be playing a “share stealing” game for existing wealth in which both an institution’s starting position and its ability to retain clients will be critical. In the new world, where aggressive market entrants can grow rapidly, the emphasis will be on capturing a significant slice of the new wealth that is being created.

    Does not include wealth of $1.2 trillion held in alternative investments in Asia-Pacific (excluding Japan).
    Millionaires

    The total number of millionaire households reached 13.8 million globally in 2012, or 0.9 percent of all households. The U.S. had the largest number of millionaire households (5.9 million), followed by Japan (1.5 million) and China (1.3 million). (See Exhibit 4.) China should surpass Japan in 2013.

    exhibit

    The highest density of millionaires was in Qatar, where 143 out of every 1,000 households had private wealth of at least $1 million, followed by Switzerland (116), Kuwait (115), Hong Kong (94), and Singapore (82). The U.S. had the largest number of billionaires in 2012, but the highest density of billionaire households was in Hong Kong (15.1 per million), followed by Switzerland (9.4 per million).

    More broadly, the wealthy will continue to get wealthier globally. Over the next five years, global wealth among households with $5 million to $100 million in wealth will grow by a projected CAGR of 8.0 percent, compared with 9.2 percent for the ultra-high-net-worth (UHNW) segment (households with more than $100 million in wealth). (See Exhibit 5.) UHNW households held $7.5 trillion, or 5.5 percent of global private wealth, in 2012—an increase of 0.2 percentage points over 2011—and will hold an estimated $11.6 trillion (6.8 percent of global private wealth) at the end of 2017.

    exhibit

    All segments below the $5 million mark will grow at significantly lower rates, and all segments in the old world will grow at lower rates than those in the new world.

    Singapore figures have been restated owing to changes in the methodology applied for the estimate of wealth held in equities and cash at the end of 2012.
    Regional Variation

    As in previous years, the dynamics of growth in private wealth varied widely across all regions in 2012, and RDEs continued to gain importance. For example, of the BRIC nations, only China was among the top 15 wealthiest countries in 2007. In 2012, China was joined by India. In 2017, China is projected to be ranked second, with India ranked ninth and Russia eleventh. (See Exhibit 6.) By contrast, some old-world countries are losing ground. Switzerland, for example, dropped to thirteenth place in 2012 from eleventh in 2007, and is projected to fall to fifteenth in 2017.

    exhibit

    North America. Despite concerns about consumer confidence stemming from the so-called fiscal cliff in the U.S., private wealth in North America rose by 7.8 percent in 2012 to $43.3 trillion. The amount of wealth held in equities grew by 12.5 percent—driven by a strong stock market and relatively solid nominal GDP growth of 4 percent—compared with increases of 2.8 percent for bonds and 5.7 percent for cash and deposits. Private wealth in the U.S. rose by 8.1 percent, far above the 2011 level of 0.5 percent.

    With a projected CAGR of 2.1 percent, private wealth in North America will grow to an estimated $48.0 trillion by the end of 2017. In stark contrast with the Asia-Pacific region (excluding Japan), however, less than half of this growth will come from new wealth.

    The generally positive market sentiment can be attributed to a somewhat stabilized economic outlook in the U.S., as well as to the continued monetary stimulus provided by the Fed in the form of the third round of quantitative easing. The U.S. savings rate was relatively low, making growth in private wealth more dependent on equity returns, especially compared with RDEs.

    Western Europe. Private wealth in Western Europe rose by 5.2 percent to $35.8 trillion in 2012. The amount of wealth held in equities rose by 11.3 percent, bolstered by overall stock-market strength, compared with rises of 1.5 percent for bonds and 3.5 percent for cash and deposits. This strength contrasted with low nominal GDP growth, which varied significantly across countries. For example, the economic growth of France (1.6 percent), Germany (2.0 percent), and the U.K. (1.7 percent) was modest, while Italy (0.9 percent), Portugal (–3.9 percent), and Spain (0.6 percent) fared even worse. The growth in wealth was generally higher in northern Europe than in southern Europe.

    Some equity markets in Western Europe performed negatively in the first half of the year, owing to rising economic uncertainty linked partly to the Greek elections. But they rallied in the second half after the head of the European Central Bank (ECB), Mario Draghi, committed to doing “whatever it takes” to save the euro, and the ECB launched the outright monetary transactions initiative.

    With a projected CAGR of 2.5 percent, private wealth in Western Europe will grow to an estimated $40.6 trillion by the end of 2017.

    Japan. Japan achieved a modest increase of 2.4 percent in private wealth in 2012 to reach $17.2 trillion—but the rate of increase was nonetheless the highest since 2007. Private wealth held in equities grew by 6.5 percent, helped by rising Japanese stocks and generally positive equity sentiment globally, as well as by the depreciation of the yen and the election of a new Japanese president apparently dedicated to fighting deflation in the country—an initiative viewed favorably by investors. Wealth held in bonds fell by 6.5 percent, while wealth held in cash and deposits rose by 1.5 percent. The weakening yen, which fell by 8.1 percent in 2012 against the U.S. dollar, aided the important Japanese export sector, but GDP was flat.

    With a projected CAGR of 1.1 percent, private wealth in Japan will grow to an estimated $18.2 trillion by the end of 2017. This growth will be driven mainly by returns on existing wealth. The share of total wealth held by households with less than $1 million was 78 percent in 2012, a high level compared with all other regions.

    Asia-Pacific (excluding Japan). Asia-Pacific (excluding Japan) was the fastest-growing global region in terms of private wealth in 2012, posting an increase of 13.8 percent to reach $28.0 trillion. Strong GDP growth in India and China was the principal driver of this expansion, aided by high savings rates. The amount of wealth held in equities (including alternative investments) rose by 21.9 percent, driven largely by improving economic data for China in the second half of the year. Wealth held in bonds rose by 10.6 percent, and wealth held in cash and deposits rose by 10.4 percent. The strongest growth in the region was in the higher wealth bands, with the share of total wealth held by millionaire households reaching nearly 40 percent in 2012.

    With a projected CAGR of 11.4 percent, the region will see its private wealth grow to an estimated $48.1 trillion by the end of 2017—just surpassing North America as the world’s wealthiest region—driven strongly by new wealth creation.

    Eastern Europe. Eastern Europe’s private wealth rose by 13.2 percent to $2.3 trillion in 2012, underpinned by strong GDP growth in Russia. As in many other regions, the growth in private wealth was supported by generally rising stock markets. Private wealth held in equities rose by 17.7 percent in 2012, compared with increases of 13.0 percent in bonds and 11.6 percent in cash and deposits.

    With a projected CAGR of 11.3 percent, private wealth in Eastern Europe will grow to an estimated $4.0 trillion by the end of 2017—more than double the 2010 level but still small compared with Western Europe. The increase will be driven principally by new wealth creation.

    Latin America. Latin America achieved double-digit growth in 2012, with total wealth rising by 10.5 percent to $3.9 trillion. Major factors were robust GDP growth in the region as well as the equity market recovery. Private wealth held in equities rose by 20.5 percent in 2012, compared with increases of 11.1 percent in bonds and 8.0 percent in cash and deposits. With a projected CAGR of 8.3 percent, private wealth in Latin America will grow to an estimated $5.9 trillion by the end of 2017.

    One overarching trend in Latin America is that the wealth management market is becoming far more competitive than in previous years. There are several reasons for this. First, offshore offerings in the region are becoming more sophisticated as international offshore players enter the market and develop an onshore presence. (See “Trends in Offshore Wealth.”) Other new players are breaking into the market as well, such as asset managers that are moving into the wealth management space and universal banks that are developing new wealth-management products. Family offices are deepening their own offerings. Overall, the global relevance of regional Latin American players is increasing.

    Middle East and Africa. Despite the Arab Spring and tensions in Syria, private wealth in the MEA region grew by 9.1 percent to reach $4.8 trillion in 2012. Wealth held in equities in the MEA region grew by 18.3 percent (although significant country differences existed), compared with increases of 9.2 percent in bonds and 5.2 percent in cash and deposits. Equity markets in the region posted sharply different results: for example, the Moroccan equity index fell by 15.1 percent, while the Egyptian equity market rebounded by 50.8 percent.

    With a projected CAGR of 6.2 percent, private wealth in the Middle East and Africa will grow to an estimated $6.5 trillion by the end of 2017, with most of the increase coming from new wealth creation linked to strong GDP expansion in oil-rich countries.

    United States and Canada.
    Germany, France, United Kingdom, Ireland, Italy, Spain, Portugal, Switzerland, Austria, Netherlands, Belgium, Norway, Sweden, Finland, Denmark, and Greece.
    Taiwan, China, Australia, South Korea, Hong Kong, India, Singapore, Indonesia, Thailand, Malaysia, New Zealand, Philippines, and Pakistan.
    Russia, Poland, Czech Republic, Hungary, and Slovakia.
    Mexico, Brazil, Venezuela, Colombia, Argentina, Chile, Peru, and Uruguay.
    Saudi Arabia, United Arab Emirates, Israel, Turkey, South Africa, Kuwait, Iran, Egypt, Algeria, Qatar, Oman, Morocco, Lebanon, Bahrain, Tunisia, Syria, Yemen, and Jordan.