/ 14 October 2014

More millionaires, but world’s wealth gap is growing

Nigeria’s foreign exchange reserves have fallen 14% since last year's peak in May to $42.19-billion as of February 10
South Africa has many macro-assets attractive to investors, such as a vibrant democracy, a relatively diversi?ed economy, abundant natural resources and a transparent legal system.

Global wealth is at an all-time high and has grown at a record pace over the past year to reach $263-trillion. But, at the same time, inequality has deepened, especially in the developing world.

South Africa recorded some growth in wealth over the past year and accounts for 47 000 of the world’s US dollar millionaires. But it is also listed among countries such as Brazil, India, Turkey and Russia as one with severe inequality, in which the wealthiest 10% own more than 70% of the wealth.

Credit Suisse’s Global Wealth Report 2014 – now in its fifth edition and released on October 14 – found that the world’s wealth has risen by $20.1-trillion (8.3%) over the past year to reach $263-trillion.

The data showed global wealth reached a new all-time- high average of $56 000 an adult, the highest increase recorded since the financial crisis in 2008 and 20% above its pre-crisis peak.

Giles Keating, global head of research for private banking and wealth management at Credit Suisse, said that “North America and Europe stand out this year, with percentage gains exceeding 10% in both cases”. But “developing economies have lagged as a result of weaker asset prices and currency pressures”.

South Africa loses out – but not completely
The report’s analysis of South Africa found that average household wealth, in constant exchange terms, had dropped since the 2008 financial crisis but had gathered pace in 2013 and 2014 although it had not regained its 2007 level.

“Like Brazil and Indonesia, South Africa has a distribution of wealth that is roughly similar to the distribution for the world as a whole, although fewer individuals have wealth above $100 000,” the report said.

“Still, we estimate that 63 000 South Africans are members of the top 1% of global wealth holders and that 47 000 (of a global 35-million) are US dollar millionaires. These numbers are up a little from last year, despite a 5% fall in the rand, reflecting strong overall growth in wealth.”

South Africa’s household wealth, the report said, is largely comprised of financial assets, which contribute 73% to the household portfolio.

“This reflects a vigorous stock market and strong life insurance and pension industries,” the report said.

Credit Suisse also noted South Africa is “unusual” among emerging market countries in having an official household sector balance sheet that provides a more reliable basis for the wealth composition numbers because it includes figures on net debt and asset wealth.

‘New era’ has gone into reverse
Credit Suisse found wealth inequality fell slightly in many countries before the financial crisis, but had tended to rise since 2008, especially in the developing world.

“This year’s report puts wealth inequality under the lens, and the findings show that inequality has tended to rise since 2008, particularly in developing economies,” said Credit Suisse research institute’s Markus Stierli.

“The financial crisis has acted as a breakpoint in inequality, as most countries were showing a flat or declining trend before 2007.”

The report said in almost all countries the average wealth of the wealthiest 10% of adults is more than 10 times the median wealth. For the wealthiest 1%, mean wealth exceeds median wealth by a factor of 100 in many countries and by up to 1 000 in the most unequal nations.

“This has been the case throughout most of human history … however, a combination of factors caused wealth inequality to trend downwards in high-income countries during much of the 20th century, suggesting that a new era had emerged,” the report said. “That downward trend now appears to have stalled, and possibly gone into reverse.”

China on the rise
Credit Suisse estimates that wealth is likely to rise by nearly 40% in the next five years, reaching $369-trillion by 2019. Emerging markets are set to increase their share of global wealth to 21% by 2019, with China alone expected to represent nearly 10% of global wealth against just over 8% at present.

Additionally, the number of millionaires worldwide is to increase by about 53% in the next five years, reaching 53.2-million in 2019, the report said.