Singapore/ Hong Kong, 19th September 2019 -- According to the tenth addition of Allianz’s Global Wealth Report, which puts the asset and debt situation of households in more than 50 countries/regions under the microscope, financial assets in 2018 across industrial and emerging countries/regions declined simultaneously for the first time.
This included the gross financial assets of Asian households which declined by 0.9% in 2018, marking the first decline since the Great Financial Crisis in 2008.
Savers worldwide have found themselves in a bind, due to the escalating trade conflict between the US and China, Brexit and increasing geopolitical tensions, the tightening of monetary conditions and the (announced) normalization of monetary policy.
The stock markets reacted accordingly, with global equity prices falling by around 12% in 2018, which had a direct impact on asset growth. Global gross financial assets of private households fell by 0.1% and remained more or less flat at EUR 172.5 trillion.
“The increasing uncertainty takes its toll”, said Michael Heise, chief economist of Allianz Group. “The dismantling of the rule-based global economic order is poisonous for wealth accumulation. The numbers for asset growth also make it evident: Trade is a no zero-sum game. Either all are on the winning side – as in the past – or all are on the losing side – as happened last year. Aggressive protectionism knows no winners.”
Asia ex Japan: Financial assets decline by 0.9%
The 0.9% decline of Asian households’ gross financial assets was triggered by a sharp fall in securities, mainly equities and investment funds, by 14%. Bank deposits, on the other hand, and insurance and pensions were growing healthily by 8.7% and 8.2%, respectively.
The whole of Asia was dragged down by developments in China where financial assets fell by 3.4%. Although other countries/regions avoided negative territory, growth was dismal elsewhere, too: It halved in both Indonesia and Singapore, for example, and came almost to a halt in South Korea and Thailand. Only India could escape the gloom halfway, posting an increase of 9% in 2018 – which was nonetheless the weakest since the turn of the century.
When analyzing portfolio structures, one trend becomes obvious: As Asian financial markets have become more sophisticated, the share of assets held in simple bank deposits has dropped significantly. It stood at 46.4% at the end of 2018, 16 percentage points below the level at the beginning of the century. Correspondingly, the share of securities rose from around 20% to 36.2%, as more and more households invest their savings in capital markets. The share of insurance and pensions, however, was a mere 16%, i.e., half the global level.
“It is a paradox savings behavior”, said Michaela Grimm, Allianz Group Senior Economist and co-author of the report. “Asian countries/regions age rapidly and many people save more because public pension schemes in many of these countries/regions are still in their infancy or provide only a basic pension in old age. But they seem not to embrace those products that offer the most effective old-age protection, namely life insurances and annuities. Both governments and the industry should step up their efforts further to offer attractive solutions in this field. This also holds true for initiatives to improve financial literacy and accessibility.”
Singapore takes the crown from Japan
On average, net financial asset per capita reached EUR 6,910 in Asia (ex Japan) in 2018, dropping almost 7% from the previous year’s record level (but still far ahead of Latin America and Eastern Europe). Besides Japan, three other Asian countries/regions – Singapore, Taiwan, and South Korea – are in the Top 20 of the list of the richest countries/regions (financial assets per capita, see table). And for the first time, Singapore overtook Japan as the richest country/region in Asia. At the top, the USA replaced Switzerland again, not least thanks to the strong dollar. Taking a longer-term view by looking at how the list has changed since the turn of the century, the rise of Asia becomes evident: The big winners include first and foremost Singapore (+13 places) and Taiwan (+10 places) as well as – last year’s setback notwithstanding – China (+6 places) and South Korea (+5 places).
Convergence between poorer and richer countries/regions comes to a halt
In 2018, gross financial assets in emerging markets not only declined for the first time, but the decline of -0.4% was also more pronounced than in the industrialized countries/regions (-0.1%). The weak development in China, where assets fell by 3.4%, played a key role. However, other important emerging markets such as Mexico and South Africa also had to absorb significant losses in 2018.
This is a remarkable trend reversal. Over the last two decades, financial assets growth in poorer regions was on average 11.2 percentage points higher than in the richer ones, even if 2018 is included. It seems that the trade disputes have set an abrupt stop sign for the catching-up process of poorer countries/regions. Industrialized countries/regions, however, did not benefit either, with Japan (-1.2%), Western Europe (-0.2%) and North America (-0.3%) having to cope with negative asset growth, too.
Growth in liabilities stabilizes at high level
Worldwide household liabilities rose by 5.7% in 2018, a tad below the previous year's level of 6.0%, but also well above the long-term average annual growth rate of 3.6%. The global debt ratio (liabilities as a percentage of GDP), however, remained stable at 65.1%, thanks to still robust economic growth. Most regions saw a similar development in that respect. But Asia (excluding Japan) is a different story. True, debt growth slowed down in 2018, to 13.8% (2017: 15.7%). But in the last three years alone, the debt ratio jumped by almost ten percentage points to 52.4%, driven mainly by China where it increased by a whopping 15 percentage points to 54.0%.
“Debt dynamics in Asia and particularly in China are concerning”, commented Patricia Pelayo Romero, Allianz Group Economist and co-author of the report. “Chinese households are already relatively as indebted as, say, German or Italian ones. The last time we had to witness such a rapid increase in private indebtedness was in the USA, Spain and Ireland shortly before the financial crisis. However, compared to most industrialized countries/regions, debt levels in China are still markedly lower. There is still time to cope with the development and avoid a debt crisis.”
Because of the strong growth in liabilities, net financial assets i.e. the difference between gross financial assets and debt, fell worldwide by 1.9% to EUR 129.8 trillion at the close of 2018. Emerging countries/regions in particular suffered a drastic decline: Net financial assets shrank by 5.7% (industrialized countries/regions: -1.1%); Asia (ex Japan) posted a decline of 6.0%.
Just a bump in the road?
For the first time in over a decade, the global wealth middle class did not grow: At the end of 2018, roughly 1,040 million people belonged to the global wealth middle class – which is more or less the same number of people as one year before. Against the backdrop of shrinking assets in China, this does not come as a big surprise. Because up to now the emergence of the new global middle class was mainly a Chinese affair: Almost half of their members speak Chinese as well as 25% of the wealth upper class.
“There are still plenty of opportunities for global prosperity”, said Arne Holzhausen, Allianz Group Head of Insurance & Wealth Markets and co-author of the report. “If other heavily populated countries such as Brazil, Russia, Indonesia and in particular India would have a level distribution of wealth comparable to China, the global wealth middle class would be boosted by around 350 million people and the global wealth upper class by around 200 million people. And the global distribution of wealth would be a little more equal: at the end of 2018, the richest 10% of the population worldwide owned roughly 82% of total net financial assets. Questioning globalization and free trade now deprives millions of people around the world of their opportunities for advancement.”