Al­lianz Global Wealth Re­port - Boom In Fi­nan­cial As­sets Con­tin­ues

Insurance - - CONTENTS - Text Dr Lorenz Weimann | Al­lianz SE Group Com­mu­ni­ca­tions

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.”

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