A unique Household Wealth Index reveals that in 2017:
•The global wealth boom to continue but the gap between developed and developing markets is closing; the split between the G7 and leading ‘emerging markets’, in terms of overall household wealth will narrow
•China to accelerate from 7th to 3nd place; India jumps from 14th to 8th place in the global wealth rankings
•Investor education is absolutely essential to avoid over concentration in any one particular asset class
•Number of countries with more than one million dollar-millionaires will increase from seven to 12 in 2017
•Singapore, Hong Kong, Switzerland, UK and Denmark to top the wealth rankings in terms of density
•The stock of Foreign Direct Investment (FDI) into the UAE is estimated (in the absence of official UAE based FDI data) to exceed US$100bn by 2011, around 33 per cent of UAE’s GDP
A new and unique Household Wealth Index, developed by Barclays Wealth and the Economist Intelligence Unit (EIU), predicts how the global distribution of household wealth will change over the next 10 years.
Published today in a report entitled Barclays Wealth Insights: Evolving Fortunes, the Household Wealth Index is the first forward forecast of its kind predicting the future spread of wealth across 50 countries. In order, the top 10 wealthiest countries in 2017 will be: 1) USA, 2) Japan, 3) China, 4) UK, 5) Germany, 6) France, 7) Italy, 8) India, 9) Canada and 10) Spain.
In 2017 there will be more than 61 million high net worth households in excess of US$1m in the top ten wealthiest countries (compared to just 34.5 million in 2007) and their combined wealth will exceed $154 trillion. The number of households in excess of US$5m in these 10 countries will reach a staggering 5.2 million within 10 years, compared to two million in 2007.
A fusion of developed and developing markets
The Household Wealth Index clearly shows the gap closing between the established economic superpowers and the rising stars amongst the developing countries.
The new report reveals that whilst the US remains at the top of the Index a number of the emerging markets will perform strongly over the next 10 years. Most significantly, China accelerates from 7th to 3rd place in the overall wealth rankings. Whilst India will jump from 14th to 8th place and Russia is catapulted from 19th place to 11th place – meaning that it is on the verge of becoming one of the top 10 wealthiest countries. Brazil is not far behind moving from 15th place to 12th by 2017. The success of the developing markets will see developed economies like Australia and South Korea move down in the rankings (from 10th to 16th and 12th to 15th respectively).
Further down the table strong performances are predicted from the maturing economies of Turkey (rising from 32th to 26th place) and Malaysia (moving from 35th position to 28th). Again, the success of newer markets has caused the displacement of historically stronger countries, such as Norway repositioned from 27th to 31st.
Michael Dicks, Head of Research at Barclays Wealth, said: “The Household Wealth Index clearly shows the gap closing between the established economic superpowers and the rising stars in terms of wealth creation in just 10 years time. By 2017 China, Russia and India will overtake some of the world’s most developed countries, and this suggests that it is no longer accurate to label these markets as ‘emerging’ and ‘developing’ economies.”
China - the world’s fastest growing economy
In only a decade China will have been catapulted from seventh to third place of the global wealth index, and as a result the Eastern star is forecast to experience an incredible increase from 22,000 to 409,000 in its $1m dollar households population. The country’s stellar economic growth, frenetic industrialisation and urbanisation, together with preparations for the Beijing Olympics, have helped fuel a nationwide construction boom that has enriched many Chinese.
India – one of the globe’s fastest-growing affluent markets
India will move into the top 10 in 8th position by 2017. The country has been transformed from a slow-growing agrarian economy into one of the worlds most dynamic in less than two decades. This economic boom has led to an unprecedented level of wealth creation in India. A strong stock market, rising entrepreneurship and widespread investment in Indian real estate has resulted in it becoming one of the fastest-growing affluent markets in the world.
GCC – A well of liquidity
Despite talk of recession and a credit crunch, the economic success story of the oil-rich, high-liquidity Gulf countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates [UAE] continues unabated.
Much of the GCC’s current liquidity can be attributed to demand for commodities, which is currently being driven in large part by resource-hungry Asian countries. According to the IMF, annual oil exports from the GCC countries have reached US$400 billion, and are forecast to rise to US$450 billion next year. Soha Nashaat, Managing Director, Head of Barclays Wealth, Middle East, North Africa & Turkey said that "other factors have also played a part in the huge increase in wealth in the region. Low interest rates, the repatriation of finance in the wake of the September 11 2001 terrorist attacks, and the policy decision of many GCC governments to diversify their economies beyond hydrocarbons have all played a role. As a result of these trends, privately held wealth in the region has increased significantly.”
In many GCC countries there is a strong cultural bias towards investing privately held wealth into physical assets or direct business transactions, with real estate being the preferred asset class for investors in the GCC. This preference is driven by two separate events: first, the stock market correction in early 2006, which left many regional retail investors nursing significant losses; and second, the real estate boom in the region, where property prices have been increasing rapidly for a number of years.
In view of the ongoing real-estate boom in the country, which is drawing investors to Dubai and to Abu Dhabi, the Economist Intelligence Unit estimates that annual inflow of FDI rose to US$16bn in 2006. Based on these figures and trends, and in the absence of official published data, we have estimated that the total stock of FDI stood at US$44bn or 27 per cent of GDP in 2006. With international oil prices forecast to remain above their long-term average over the next five years, and concomitant liquidity in the region therefore expected to remain high, we expect the stock of FDI to exceed US$100bn by 2011 (around 33 per cent of GDP). Soha Nashaat, said that "these forecasted FDI figures are further proof to the success of the visionary leadership in the region and the drive towards a sustainable and economically prosperous future. The Middle East will continue to be a region of strategic importance and future growth for Barclays Wealth.”
Education on risk and diversification is key
Regulatory change and deepening capital markets are offering households in the new leading wealth centres a more diversified range of investment options. Looking at financial allocation in China, equities have increased from 10 per cent in 2004 to 16 per cent in 2007, in Russia it has increased from 49 per cent to 66 per cent and in India from 60 per cent to 69 per cent. By contrast, allocation to equities in the US, UK and Germany has remained more or less constant over the same period.
The rapid rate of growth and often spectacular returns from local equity and real estate markets has attracted a new and often inexperienced investor public. Using China as an example, the economy grew by 10.2 per cent in 2007 and as a result many wealthy Chinese have no desire to diversify their holdings into other, slower-growing international markets, when in recent years they have typically been enjoying, for example, 10-15 per cent returns on their local property markets. This home bias and undiversified approach to the allocation of assets is a common characteristic of countries including China, Russian and India.
With the development of local capital markets and growing appetite among investors to participate in their countries economic growth, Gerard Aquilina, Head of International Private Banking at Barclays Wealth, believes that education is key. “Either through the financial services industry or the government, investor education is absolutely essential to avoid over concentration in any one particular asset class.”
The volume of dollar millionaires
The Household Wealth Index includes a projection of the number of wealthy households. By 2017 twelve countries will be home to more than one million dollar-millionaire households, compared to seven currently. The USA has a significant lead with an estimated 30 million dollar-millionaire households expected in 2017 - a growth rate of 81 per cent (from 16.6m).
Despite their considerable progress in the Household Wealth Index, developing markets are still some way behind in terms of the volume of dollar-millionaires they house. The fact that, even in 10 years’ time, the countries in the list tend to be the most developed economies suggests that in terms of absolute numbers of wealthy individuals, established markets will continue to present significant opportunities to companies targeting a high net worth population.
The concentration of the global elite
The countries with the highest percentages of dollar-millionaires will remain consistent over the next 10 years. The small, heavily populated financial centres such as Hong Kong, Singapore and Switzerland will still top the wealth rankings in terms of density in 2017.
Countries rising through the ranks in terms of density of millionaires include Japan, Denmark and the Netherlands, along with Brazil and Turkey further down the table. The density of millionaires in China will remain mostly unchanged over the next decade, causing it to drop in ranking.