Even a pandemic can't stop the growth of global financial wealth
Not even a pandemic and worldwide Covid-19-induced downturn could stop the already rich from getting even richer. Instead of shrinking, global financial wealth soared last year, rising 8% to reach an all-time high of $250 trillion, according to a new report by Boston Consulting Group.
In the year of the financial crisis, global financial wealth declined by 8%, and the economic impacts of the pandemic looked to be every bit as punishing, if not worse. However, a remarkable sting of factors came together to push global wealth to yet another record.
“Behind the boom was a spike in net new savings and strong stock market performance fuelled by highly supportive central banks. Markets shrugged off early jitters and sent many indices and equities to record highs by the year’s end. Meanwhile, cash and deposits grew by 10% over the previous year’s numbers, marking the largest annual increase in two decades,” explained Anna Zakrzewski, a partner at Boston Consulting Group and Global Leader of its Wealth Management practice.
In Boston Consulting Group’s methodology, total wealth consists of three segments. First is financial wealth, which includes wealth such as cash and deposits; bonds, equities, and investment fund shares; life insurance and pensions; and other small asset classes.
The second segment is real assets wealth, which consists of real estate (including land owned by individuals), consumer durables, and valuables (such as nonmonetary gold and other metals). In 2020, real asset wealth grew to $235 trillion. Combined, these two segments represent total wealth, which reached $431 trillion last year.
The key metric is however net wealth, which is the difference between total wealth and liabilities (such as credit card loans, mortgage loans, and other short-term and long-term loans).
Financial versus real asset wealth
In mature markets, financial assets are responsible for more than half of total wealth (59%). This is due to several factors: mature countries have well-established financial markets that are easier for individuals to access, and they also have stable currencies that encourage wealthy people to maintain holdings in cash, deposits, securities, and other liquid assets.
But in growth markets, the opposite is true, with real assets representing the preponderance of overall wealth (63%). This is mainly due to the fact that financial markets lag in maturity in growth markets, and as a result wealthy individuals place a greater share of their wealth in physical assets.
The super rich
In BCG’s report, the richest people on the planet are described as ‘Ultra high net worth individuals (UHNWIs), people with more than $100 million in total financial wealth. In 2020, more than 6,000 people worldwide became ultras, lifting the total number of people in this asset class to 60,000 worldwide. Combined, this group holds $22 trillion in investable wealth, representing 15% of the world’s total investable wealth.
The US sits at the top of the league table in UHNWI concentration, as it has for some time. But China is on track to overtake it by the end of the decade. Other countries that house a large share of ultra rich people are Germany, Hong Kong, France, India, the United Kingdom, Italy and Russia.
By 2029, the table of top ten UHNWI locations will look considerably different. China will then according to BCG’s estimates be home to $10.4 trillion in ultra assets, more than anywhere else in the world. The US will be close behind, with a forecasted total of $9.9 trillion in investable wealth by 2029. Asian markets such as Hong Kong and Singapore are expected to see their relative position increase.
Outlook
The authors expect the growth of total financial wealth to be strong in the next years. “We see signs of an emerging economic recovery that could significantly expand prosperity and wealth,” said Zakrzewski. By 2025, total wealth is predicted to reach $315 trillion, with North America and Asia (excluding Japan) leading financial wealth generators in absolute terms, followed by Western Europe.
Together, these three regions will account for 87% of new financial wealth growth worldwide between now and 2025. Of the $65 trillion in global financial wealth that will be generated over this period, $25 trillion will come from North America, $22 trillion from Asia, and $10 trillion from Western Europe. The remaining regions of the world will have only a “marginal impact on new wealth generation”, concludes the report.
