Financial services provider, Allianz has published the eleventh edition of its Global Wealth Report, which puts the asset and debt situation of households in almost 60 countries under the microscope – including South Africa.
It should be noted that global wealth was calculated before the arrival of Covid-19, which has had a dramatic impact on the world economy.
Allianz found that globally, gross financial assets grew by 9.7% in 2019, clocking the strongest growth since 2005. “This performance is astonishing given the fact that 2019 was marred by social unrest, escalating trade conflicts and an industrial recession,” it said.
“But as central banks reversed course and embarked on broad-based monetary easing, stock markets decoupled from fundamentals and soared by 25%, lifting financial assets in the process. The asset class of securities increased by a whopping 13.7% in 2019; never was growth faster in the 21st century.”
The growth rates of the other two main asset classes were lower – but still impressive, Allianz said. Insurance and pensions reached a plus of 8.1%, mainly reflecting the rise of underlying assets, and bank deposits increased by 6.4%.
All asset classes clocked growth significantly above their long term averages since the Great Financial Crisis (GFC), Allianz found.
Another peculiarity of 2019: through all the years, the regional growth league table used to be dominated by emerging markets. Not so in 2019.
“The regions that saw the fastest growth were by far the richest: North America and Oceania where the gross financial assets of households increased by a record 11.9% each. As a consequence, for the third year in a row, Emerging Markets were not able to outgrow their much richer peers. The catch-up process has stalled,” said the financial service provider.
Financial assets include cash and bank deposits, receivables form insurance companies and pension institutions, securities (shares, bonds and investment funds) and other receivables
South Africa ranked 38th in the ranking of the richest countries with net financial assets per capita of $8,385 (R140,200) according to the 2020 edition of the report.
The gross financial assets of South African households rose by 6.7% in 2019, after declining by almost 4% in the previous year.
The recovery was mainly driven by the rebound in insurance, pensions, securities and bank deposits, Allianz said.
The growth of liabilities, on the other hand, slowed down further in 2019, to 4.8% against 6.9% in 2018. While households in other emerging markets – notably in Asia – embarked on a borrowing binge, South African households showed restraint.
Last year’s recovery was mainly driven by the rebound in insurance and pensions as well as in securities, both swinging from -3.4% to 5.0% and from – 9.4% to 8.1%, respectively.
“Growth in bank deposits, on the other hand, continued to be very robust at 8.7%. This asset class, however, remains the least popular in South Africa, its portfolio share is a mere 15.6%, compared with 52% of insurance and pensions and around 30% of securities.
“Thus, the savings behaviour of South African households diverge considerably from that seen in other Emerging Markets where on average bank deposits account for almost half of all financial assets,” the German company said.
The growth of liabilities, on the other hand, slowed down further in 2019, to 4.8% against 6.9% in 2018. Accordingly, the debt ratio (liabilities in % of GDP) remained almost flat at 44.7%, more or less in line with the average in emerging markets (42.9%).
Just before the GFC, it was still 10 percentage points higher in South Africa and almost three times the average in emerging markets at that time. “While households in other emerging markets – notably in Asia – embarked on a borrowing binge, South African households showed restraint,” Allianz said.
Net financial assets, finally, increased by 7.4% in 2019, after falling by 7.3% in the previous year. With net financial assets per capita of EUR 7,112 (R139,300), South Africa remained 38th place in the ranking of the richest countries – financial assets per capita.
Crisis? What Crisis?
Allianz said that the same story is about to repeat itself in 2020 – but only in extreme. “As Covid-19 plunged the world economy to its deepest recession in 100 years, central banks and fiscal authorities around the world fired up unprecedented monetary and fiscal bazookas, shielding households and their financial assets from the consequences of a world in disarray.
“We estimate that private households have been able to recoup their losses of the first quarter and recorded a slight 1.5% increase in global financial assets by the end of the second quarter 2020 as bank deposits, fuelled by generous public support schemes and precautionary savings, increased by a whopping 7.0%,” the group said.
Very likely, private households’ financial assets can end 2020, the year of the pandemic, in the black. “For the moment, monetary policy saved the day,” said Ludovic Subran, chief economist of Allianz. “But we should not fool ourselves. Zero and negative interest rates are a sweet poison.
“They undermine wealth accumulation and aggravate social inequality, as asset owners can pocket nice windfall profits. It’s not sustainable. Saving the day is not the same as winning the future. For that, we need more than ever structural reforms post Covid-19 to lay the foundations for more inclusive growth.”
The wealth gap between rich and poor countries has widened again, the report found. In 2000, net financial assets per capita were 87 times higher on average in the Advanced Economies than in the emerging markets; by 2016 this ratio had fallen to 19.
Since then, it has risen again to 22 in 2019. This reversal of the catching-up process is widespread. For the first time, the number of members of the global wealth middle class has fallen significantly from just over 1 billion people in 2018 to just under 800 million people in 2019, Allianz said.
It said that despite progress among emerging markets, the world remains a very unequal place.
The richest 10% worldwide – 52 million people in the countries in scope with average net financial assets of EUR 240,000 – together own roughly 84% of total net financial assets in 2019; among them, the richest 1% – with average net financial assets of above EUR 1.2 million – own almost 44%.
The development since the turn of the millennium is striking. While the share of the richest decile has fallen by seven percentage points, that of the richest percentile has increased by three percentage points. So the super-rich do indeed seem to be moving further and further away from the rest of society.
“It is quite worrying that the gap between rich and poor countries started to widen again even before Covid-19 hit the world,” said Michaela Grimm, co-author of the report.
“Because the pandemic will very likely increase inequality further, be set back not only to globalisation but also disrupting education and health services, particularly in low-income countries. If more economies are turning inwards, the world as a whole will be a poorer place.”