Yesterday, in its latest triennial Survey of Consumer Finances, the Fed admitted what had been obvious to everyone else: Fed policies unleashed over the past decade have made the rich richer, even as the American middle class has continued to shrink.
Then overnight, Capgemini released its latest World Wealth Report, which found more of the same: the number of people with investable assets of at least $1 million across Asia Pacific, Europe and North America increased by 7.5% in 2016, while their aggregate wealth rose by 8.2%, more than double the 2015 growth rate. Meanwhile, the wealth of the ultra-rich - those with more than $30 million in assets - grew by 9.2% percent.
As shown in the chart below, in a year in which the S&P hit new all time highs, the report found notable jumps in the ranks of millionaires in North America and Europe, where wealthy populations grew 7.8% and 7.7%, a sharp jump from the 2% and 5%, respectively, in 2015. Offsetting this was the Asia-Pacific region (ex Japan), where growth slowed modestly, slipping to 7.4% from 9%. Still, as in previous years, the Asia-Pac region remains host to the largest number of millionaires, with some 5.5 million High Net Worth individuals (those with more than $1 million in investable assets) in 2016, versus 5.2 million in North America and 4.5 million in Europe.
Those gains add up to 16.5 million people with at least $1 million in investable assets around the globe, holding a record $63.5 trillion in wealth, up from 10.9 million high-net-worth investors in 2010 with combined assets of $42.7 trillion.
One of the most notable shifts in the market rankings was France overtaking the U.K. to occupy the number-five position. France benefited from a recovery in its real estate sector (from a decline in 2015 to 1.3% growth in 2016), as well as continued moderate growth in its economy and equity markets (Figure 8). Also notable was Sweden placing among the top 25 markets for the first time by overtaking Singapore and Belgium, both of which suffered from declines in their equity markets. Other key changes included Russia (the fastest-growing market in 2016) moving past Saudi Arabia and Norway, aided by equity market growth of about 20%, surpassed Hong Kong, whose equity market was largely flat. Austria surpassed Mexico, which was the only top-25 market to witness a decline in HNWI population (due to a weak equity market).
But the biggest increases were observed in several countries, which saw their high net worth populations grow by double digits, largely as a result of a sharp rebound in commodity prices. Specifically, a handful of markets, including Russia, Brazil, and Canada dramatically reversed course from declines suffered a year ago. Gains in (commodity-linked) stocks, cited by investors as their largest asset class, helped fuel Russia’s 19.7% growth in the number of rich investors last year. That was a sharp turnaround from a 1.8% decline in 2015. Even so, the pool of Russian millionaires, at 182,000, is relatively small. Brazil also rebounded in 2016, with a 10.7% rise in millionaire investors after a 7.8% drop in 2015. There, the ultra-rich hold some 87% of all the wealth held by wealthy investors. The high-net-worth population of the U.S. grew 8% last year.
Looking at the top four markets of the U.S., Japan, Germany, and China, they continued to account for nearly two-thirds (61.1%) of all HNWIs in 2016 (Figure 4). New HNWIs, however, emerged from a wider variety of markets during 2016. Compared to 2015, when 81% of new HNWIs came from the top four markets, only 59% did so in 2016
Though the U.S. and Japan remain the largest and most mature HNWI markets, China’s influence since 2010 has been increasing. Its emergence as an economic powerhouse has made it the fastest grower of HNWI wealth and population since 2010, followed by Kuwait, Sweden, and Norway. The laggards during that time included the mature Latin American markets of Brazil and Mexico, both of which were major contributors to constrained global HNW growth. Meanwhile, above-average growth from 2010 onward by a variety of markets, including Japan, Netherlands, the U.S., and India, balanced out weaker growth in the other key economies, including the U.K., Argentina, Australia, and Canada
Ultra-HNWIs, with US$30 million or more in investable assets, posted striking improvements in wealth and population, thanks in part to an upswing in Latin American economic performance. Because Latin America accounts for more ultra-HNWI wealth than any other region, it holds significant sway over the segment’s overall growth. Vibrant growth in Latin America helped lift global ultra-HNWI wealth by 9.2%, up from an increase of only 2.5% in 2015. Similarly, the global ultra-HNWI population increased by 8.3%, nearly double the 4.2% recorded in 2015 (Figure 5).
Where did most of this newfound wealth come from? According to Capgemini, stock markets fueled the bulk of the gains for well-heeled investors in much of the world last year, though their portfolios aren’t overwhelmingly in stocks. On average, high-net-worth investors had just over 31.1 percent in stocks in 2017’s second quarter, up from 24.8 percent at the end of 2016, and a five-year high. Equities were cited by more than 90 percent of investors as “an important or the most important contributor to their investment performance.” After stocks, the next-highest chunk of assets for the (U)HNW population was sitting in cash and cash equivalents, at 27.3%. That was an increase from 2016’s 23.5%. meanwhile, real estate unexpectedly shrank to 14% of the average portfolio, from about 18% in 2016, the lowest allocation to this class in the past five years. At the same time, stakes in alternative assets such as hedge funds, commodities, and private equity took a deep dive.
But the biggest surprise, at least to us, from the report is that at current trends, the world is on its way to reaching more than US$100 trillion in HNWI wealth by 202 , thanks to strong global HNWI wealth growth of 8.2% in 2016, which far surpassed the anticipated rate of 6.1% annually over 2015 to 2025. Global HNWI wealth is now expected to expand by 5.9% annually through 2025 to reach US$106 trillion.
Meanwhile, as the rich get richer, the middle-class around the globe continues to shrink as the Fed itself admitted yesterday.
Which begs the question: if populist anger in 2016, when the world's richest owned "only" $62 trillion in wealth, led to such unexpected and angry reactions to the status quo as "Brexit" and "Trump", just what will the 2025 world, in which a few million people own $100 trillion in wealth, look like, and can the world's central bank continue to shift blame and scapegoat others for what has been the world's largest wealth transfer process in history?