Allianz Global Wealth Report - Boom In Financial Assets Continues
Allianz unveiled the sixth edition of its “Global Wealth Report”, which puts the asset and debt situation of private households in more than 50 countries under the microscope. Based on the findings of the report, three first-time milestones in financial asset development were passed in 2014: The global net financial assets of private households surpassed the 100-trillion-euro mark, China’s private financial assets exceeded those of Japan, and the number of people falling into the wealth middle class in global terms breached the 1 billion mark. In detail:
Global gross financial assets of private households grew by 7.1 percent in 2014; thus the robust growth witnessed in previous years continued, albeit at a slightly slower pace. Increasingly, growth is driven by households moving up a gear with their savings efforts; in Asia and America, stock markets continued to be a tailwind. This brought total global gross
financial assets up to a new record level of EUR136 trillion – higher than the value of all of the world’s listed companies and all sovereign debt. “Many observers will interpret these figures as evidence for the so-called savings glut”, said Michael Heise, Chief Economist at Allianz. “But this is the wrong perspective. Against the backdrop of low interest rates, too many households are still not saving enough for old age. Policymakers should not try to restrict savings but find new ways and incentives to promote capital demand. There is no lack of investment opportunities because the challenges that lie ahead are huge: climate change, poverty and migration, digital revolution, outdated infrastructure – to name but a few.”
Slower than financial assets, global liabilities of private households climbed by 4.3 percent to total EUR35 trillion last year, bringing global debt growth up to the highest level seen since the outbreak of the financial crisis. If we subtract debt from the gross financial assets, we arrive at a new record figure for net financial assets of over EUR100 trillion at the close of 2014, an increase of 8.1 percent on a year earlier.
As in previous years, regional growth in financial assets differs widely. The unrivalled growth champion remains Asia (ex. Japan), where net financial assets grew by 18.2 percent in 2014.
The main driving force behind this trend was the sharp (and sometimes not sustainable) increase in securities assets, particularly in China. In the world’s other two emerging regions, Latin America and Eastern Europe, on the other hand, developments were much more subdued: financial assets increased by 4.2 percent (Latin America) and 8.6 percent (Eastern Europe) respectively. For the first time since the financial crisis, the Eurozone notched up higher growth than North America in 2014. The strong growth of 6.2 percent (compared with 5.3 percent in North America) was thanks largely to strict “debt discipline”: In many European countries, the cutback of private debt continued in 2014 as well.
Permanent high growth in Asia has also left its mark on the world asset map, where weightings continued to shift. The region Asia (ex. Japan) accounted in 2014 for a good 16 percent of the world’s financial assets (gross as well as net). This figure is up by 1.4 percentage points on 2013 and means that the proportion of assets held by this region has more than trebled since 2000. Last year also saw a major landmark being passed as part of this catch-up process: China’s total gross financial assets exceeded those of Japan for the first time at the end of 2014. “Recent growth in financial assets in Asia, in particular in China,
Policymakers should not try to restrict savings but find new ways and incentives to promote capital demand.
was really very positive”, commented Heise. “Against this backdrop, a slowdown in growth – as we are currently witnessing – is not worrying at all. China’s catch-up process is by no means over, China today is a different, much richer country than five or ten years ago. The positive impact of China’s rise for the economy and financial markets worldwide is still tremendous.”
The increasing weight of Asia can also be seen from a different perspective. Last year, the number of people falling into the wealth middle class in global terms surpassed the 1 billion mark for the first time. Since 2000, almost 600 million people from the “low wealth” category have been promoted to the wealth middle class. All in all, membership of this group has trebled since the turn of the millennium. This momentum is, however, concentrated primarily in only one region, or rather indeed in only one country: China. Around two-thirds of the global wealth middle class are now recruited from Asia – and 85 percent of them hail from China. This means that the Asian population falling into the middle class bracket has increased almost tenfold since the start of the millennium. “This development highlights the inclusive nature of asset growth in a global comparison: more and more people are managing to participate in global prosperity”, commented Heise.
In Malaysia, gross financial assets grew by 5.7 percent last year, i.e. not only slower than in recent years but also slower than in all other Asian countries, except Japan. Although growth in liabilities decreased to 9.9 percent in 2014, the increase was still considerably higher than the growth of private households’ financial assets. As a consequence, the increase in net financial assets came more or less to a standstill in 2014 (+2.2 percent) and the debt ratio (liabilities as percentage of GDP) climbed to a new record of 85 percent. This level of indebtedness is not only way above the regional as well as the global average but also higher than, say, in Japan or in the US.
The rise of Asia is also reflected in the ranking of the 20 richest countries (per capita net financial assets, see table): In 2014, three Asian countries – Japan, Singapore and Taiwan – were among the Top 10 of our list; back in 2000, it was only Japan. However, beyond the Top 20, the picture is rather mixed for Asia. Whereas some countries moved up – first and foremost China but also South Korea – others slipped by four or more rungs, namely Indonesia, Thailand and Malaysia. With net financial assets per capita of EUR 8,380 on average, Malaysia ranked 32nd in international comparison, slipping by four rungs since 2000. “Such rankings should be taken with a pinch of salt”, explained Heise. “However, the long-term movements are quite significant, the message is clear: The regional development of financial assets is far from homogenous. There are huge differences among the countries, many have still a lot of ground to catch up.”
Overall, distribution structures in Asia are slightly more egalitarian than elsewhere...
Moreover, wealth distribution differs not only widely among countries but also within countries. In order to show how wealth is distributed at the national level, we have calculated a Gini coefficient for each country, based on the average net financial assets per population decile, for the first time in this report, namely for the past (period around 2000) and for the present day. Looking at all of the countries in our analysis, the number of countries in which the Gini coefficient of wealth distribution has “improved” over time (i.e. showing more equal distribution) is roughly on a par with the number of countries in which it has deteriorated. This also holds true for Asia, although movements in both directions are not strong, developments in this respect have been more or less at a standstill. Overall, distribution structures in Asia are slightly more egalitarian than elsewhere, the (simple) regional average of the Gini coefficient stands at 62.7 against a global average of 63.8. The value for Malaysia is 69.6 – markedly above the average for Asia, indicating a rather unequal distribution of wealth. On the other hand, the world’s developed countries paint a different picture, most of these countries have seen a (sometimes considerable) increase in the inequality of distribution in recent years. This holds true for the US in particular: Here, the increase in inequality is more pronounced than in any other country during the period analysed and the USA has the highest Gini coefficient in our analysis (80.6). “The situation in the US is clearly worrying”, said Heise. “However, our calculations indicate that developments have not been quite as dramatic in the other countries. As usual, the US represents more the exception than the rule among market economies. This is often lost in our debates, because of the dominance of Anglo-Saxon economists, and the situation in the US is seen as synonymous with the rest of the world. Fortunately, this is not the case.”