The Atlanta Journal-Constitution
$16 trillion global loss predicted
Volatile markets and the economic fallout from the novel coronavirus pandemic could wipe out as much as $16 trillion of global wealth this year and hinder growth for the next five years, according to a study by Boston Consulting Group. By comparison, the 2008 financial crisis erased $10 trillion.
What it means
The rich are still getting richer, but the coronavirus crisis may slow the breakneck pace of wealth accumulation for years to come.
“The segment that will be hit the hardest in the slow recovery and lasting damage scenarios will be the wealthiest, the millionaires and the billionaires, simply because of the high exposure to equity markets and market volatility,” said Anna Zakrewski, global leader of BCG’s wealth management practice and the lead author of the report.
A decade-long bull run in equities has helped the millionaires and billionaires of the world increase their wealth at double the rate of middle-income and poor people.
Now that same dependence on markets can put their fortunes at risk if volatility caused by the virus continues for years.
The world’s personal financial wealth grew 9.6% in 2019 over 2018, the strongest annual growth rate since 2005, the BCG study found.
What’s next
From 2019 through 2024, wealth growth worldwide could slow to a compound annual growth rate of 1.4% if BCG’s worst-case scenario pans out. Its model for a quick rebound predicts a rate of about 4.5%.
In the short term, the wealthy will move assets to perceived safe havens. Over a longer period some of it may be repatriated to make it easier to access liquidity, especially if the downturn lasts. That would work to the advantage of places like Hong Kong and Singapore because of their proximity to China and other fast-growing markets of Asia.
The pandemic could also push overdue change for the guardians of the world’s riches. Wealth managers are confronting the virus in worse shape than they were before the financial crisis, with lower returns on assets and higher cost bases than in 2007, according to BCG.
“We see COVID-19 as a wake-up call for the industry,” said Zakrewski. “The last 10 years have fueled quite a confident performance for some of the wealth managers and taken away the pressure to address business models.”
Wealth managers have only “scratched the surface” on costs, according to Zakrewski. While regulatory and compliance requirements have bloated costs, most banks have just thrown people at the problem instead of redefining operating models and exploring digital options for reducing costs, she said.