After Setback, Global Wealth Seen Rising Over Next Five Years - Credit Suisse

Tom Burroughes

10 October 2012

Global household wealth will rise by almost a half over the next five years to 2017, reaching $330 trillion, while the number of millionaires will reach 46 million by that date, a gain of 18 million, Credit Suisse said in a report today that also showed wealth has shrunk in recent months.

In its annual Global Wealth Report for 2012, the Swiss bank said China will overtake Japan as the second wealthiest country in the world over the next five years, adding $18 trillion to the stock of global wealth. Meanwhile, the US will remain king of the wealth heap with $89 trillion by 2017. The eurozone, meanwhile, will underperform against the US, having the same amount of wealth as the US despite having 16 million more adults.

Brazil’s number of millionaires will rise the fastest over the five years to 2017 at a rate of 119 per cent, beating Russia (109 per cent) and Malaysia (108 per cent) and Poland (105 per cent). In the US, the rate of growth is 53 per cent, albeit from that country’s vastly higher starting point of 1,102,300 millionaires in 2012. For the world as a whole, the number of millionaires will rise 62 per cent, Credit Suisse predicts.

The study defines wealth as the value of financial and non-financial assets (mainly property) minus household debt. All current data relates to the middle of this year and current exchange rates, not purchasing power parity.

“There is no question that the economic uncertainties of the past year – particularly those affecting the eurozone – have cast a huge shadow over household wealth,” Michael O’Sullivan and Richard Kersley, of the Credit Suisse Research Institute, said in the report. “Our research confirms that economic recession in many countries combined with widespread equity price reductions and subdued housing markets have produced the worst environment for wealth creation since the financial crisis,” they said.

The relative stability of the US economy led to a rise in the dollar’s exchange rate against most currencies, with a particularly noted impact against Europe, raising the aggregate wealth loss to $10.9 trillion; the Asia-Pacific and Latin America regions also suffered, the report said.

The region to suffer the largest wealth drop between mid-2011 and mid-2012 was Europe, down 13.6 per cent, followed by Latin America (-8 per cent); Africa (-5.0 per cent), and Asia-Pacific, including India and China (-1.9 per cent).

Ultras

Moving to the top echelon of wealth holdings, Credit Suisse estimates there are 84,500 ultra high net worth individuals today (measured as those with net assets of $50 million or more). Of these, 29,300 are worth at least $100 million and 2,700 have net assets over $500 million. North America accounts for 47 per cent of UHNW individuals; Europe at 26 per cent, and 15 per cent residing in Asia-Pacific countries, including India and China. In terms of single nations, the US has the largest share, at 45 per cent.

When ranked by average wealth per adult, Switzerland is in the lead, at $468,186, but a drop of 13 per cent from 2011; Australia is second (-11 per cent); Norway is in third, at $325,989; Luxembourg is fourth, at $377,119 (-14 per cent); and Japan is fifth, at $269,708 (up 1 per cent). France is sixth, at $265,463 (-15 per cent); the US is seventh, at $262,351 (up 1 per cent); Singapore is eighth, at $258,117 (-4 per cent); the UK is ninth, at $250,005 (-6 per cent) and Sweden is tenth, at $237,297 (-17 per cent). (Some of the shifts, as in Switzerland, are driven by forex fluctuations.)

The Credit Suisse research also starkly revealed trends in debt: controlling for exchange rate shifts, total household debt grew 8 per cent from 2000-2007, then it flattened out. For the 12 years from 2000, aggregate debt rose by 81 per cent, accounting typically for 20 to 30 per cent of wealth in advanced economies.

Among the surprises in the report, Credit Suisse said, was that Canada – often seen as avoiding the worst of the financial turmoil – has the highest debt to income ratio among the Group of Seven leading industrialised countries, while Italy – seen as a eurozone weakling – has the lowest.

The report also shows variations in the role played by inherited fortunes. Inherited money makes up 30 to 50 per cent of total household wealth in member countries of the Organisation for Economic Co-Operation and Development. In low-growth countries, the share is likely to be higher, and very low in “transition” economies, the report said.

A term sometimes used in discussions of wealth distribution - "the wealth pyramid" - gets an airing in the report.

"More than two-thirds of the global adult population have wealth below $10,000, and a further one billion (23 per cent of the adult population) are placed in the $10,000–100,000 range. While the average wealth holding is modest in the base and middle segments of the pyramid, total wealth amounts to $39 trillion, underlining the potential for new consumer trends products and for the development of financial services targeted at this often neglected segment," the report said.

"The remaining 373 million adults (8 per cent of the world) have assets exceeding $100,000. This includes 29 million US dollar millionaires, a group which contains less than 1 per cent of the world’s adult population, yet collectively owns nearly 40 per cent of global household wealth. Amongst this group, we estimate that 84,500 individuals are worth more than $50 million, and 29,000 are worth over $100 million," it continued.

"The composition of the wealth pyramid in 2012 is broadly similar to that of the previous year, except for the fact that the overall reduction in total wealth increases the percentage of adults in the base level from 67.6 per cent to 69.3 per cent and reduces the relevant population share higher up the pyramid by a corresponding amount. The respective wealth shares are virtually unchanged," it said.