Asset Prices and Exchange Rates


Portofino village on the Ligurian Coast, Italy

Strong equity markets a key source of wealth growth

Over long periods, trends in household wealth are strongly related to economic growth, saving rates, and other economic and demographic factors. Over shorter timespans, however, changes in household wealth across regions and countries are sensitive to movements in asset prices and exchange rates. Last year, these factors were generally supportive and, in the case of equity prices, abnormally strong in many countries. Given that financial assets are disproportionally held by wealthier cohorts, this certainly reinforced the debate about the distributional effects of ongoing central bank asset purchase programs, or quantitative easing (QE) – a discussion that we will touch upon in the wealth inequality chapter.

In a normal year, a 22.6% rise in market capitalization would have placed the United States close to the top of the country rankings: this year the United States occupied seventh place among the ten countries listed in Figure 3 (the G8 countries plus China and India). Looking further afield, the United States fell in the bottom half of the 50 economies that we monitor in detail. Canada, France and Germany all recorded gains close to 30%, while capital markets rose by 40% in India and New Zealand, by 50% in Denmark, Italy and Spain, and by 65% in Argentina. Viewed in this context, the 10% rise in Japan and Russia was very modest, although Mexico fared worse with a slight decline, and equity prices dropped in Chile, Indonesia, Turkey and Ukraine by an average of 10%.

House price movements are another source of changes in household wealth, in this instance influencing the non-financial component. Last year, the median house price rise was 2.4%, roughly the level experienced by Germany and India, amongst others. Property owners in China (8%), Australia (8%) and the United Kingdom (9%) did better than average, but these were topped by 11% rises in Colombia and Turkey, and by rises above 15% in Peru, the Philippines and the United Arab Emirates. Elsewhere, house prices were flat in Russia and in the United States, declined a fraction in France, Japan and Singapore, and dropped by around 5% in Greece and Italy.

Euro and Pound appreciation

The positions of individual countries in the global wealth league table are sensitive to exchange rates versus the US dollar. Europe has been the main beneficiary of currency appreciation this year, with the euro gaining 5.3% and the British pound topping the table with a rise of 12.4%. Korea was a close second with 11.5%, while the rates for New Zealand, Poland, Switzerland and Taiwan all rose by 8%. At the other end of the scale, India, Russia and Thailand depreciated by 6-7%, Chile, Indonesia and Turkey by more than 10%, and Argentina and Ukraine by more than 30%. Overall, the impact of USD appreciation outweighed the impact of depreciating currencies. Between mid-2013 and mid-2014, total global wealth grew by 8.3% when measured in current USD but by 7.0% when calculated using constant USD exchange rates.



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