Pandemic could erase $16 trillion of wealth this year, topping ’08 crisis
The rich are still getting richer, but the coronavirus crisis may slow the breakneck pace of wealth accumulation for years.
Volatile markets and the economic fallout from the virus 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.
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.
Personal financial wealth reached $226 trillion globally in 2019, a 9.6% gain from 2018 and the strongest annual growth rate since 2005, the BCG study found. But 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%.
The number of dollar millionaires globally has tripled over the past 20 years to 24 million — with more than two-thirds in North America — and they collectively now hold more than half of all financial wealth, the report said. That means a worst-case scenario would hit North America hardest, along with Japan. Both regions would experience declines over the five-year period.
BCG estimates that
$9.6 trillion of the world’s wealth was held offshore in 2019, up 6.4% from the previous year, with Asia (excluding Japan) being the largest contributor.
In the short term, the wealthy will move assets to perceived havens. While Switzerland remains the destination of choice for those wanting to place money abroad, Hong
Kong and Singapore are catching up. Both are expected to grow the assets they manage more than twice as fast as Switzerland over the next five years.
The pandemic could also push 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.