Global Wealth 2015: the year in review

2015

New Zealand

 

Top 1% now own half of all wealth

Now in its sixth edition, the Credit Suisse Global Wealth Report is the most comprehensive and up-to-date source of information on global household wealth. This year the United States continued adding to global wealth at an impressive rate, with solid growth also evident in China. Elsewhere, local currency wealth gains were offset by depreciation against the US dollar, so that world wealth declined overall by USD 12.4 trillion. The share of financial assets rose again as a percentage of total wealth, and may help explain why wealth inequality edge upwards. The top 1% of wealth holders now own half of all household wealth.

Underlying growth in household wealth offset by adverse exchange rates

For the year to mid-2015 the United States again led the world with a substantial rise in household wealth of USD 4.6 trillion. This continues a remarkable streak since the financial crisis, which has seen seven successive years of wealth gains and new record levels of household net worth for the past three years. China also posted a large annual rise of USD 1.5 trillion. Elsewhere the underlying wealth trends have been generally positive, but the gains valued in domestic currencies have been more than offset by adverse exchange rate movements against the US dollar. As a consequence, total global wealth, which would have risen by USD 13 trillion between mid-2014 and mid-2015 if valued at constant exchange rates, fell instead by USD 12.4 trillion (see Table 1). At USD 250.1 trillion, total global household wealth just kept ahead of the USD 250 trillion threshold which was passed for the first time in 2013. Wealth per adult fell by 6.1% to USD 52,400 and is now also back below the level of two years ago.

Table 1

Change in household wealth 2014-2015, by region

Source: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Databook 2015

 

total wealth change in total wealth wealth per adult change in wealth per adult change in financial assets change in non-financial assets change in debts
2015 2014-5 2014-5 2015 2014-5 2014-5 2014-5 2014-5 2014-5 2014-5 2014-5
USD bn USD bn % USD % USD bn % USD bn % USD bn %
Africa 2,596 -223 -7.9 4,536 -10.3 -126 -8.3 -100 -6.3 -4 -1.4
Asia-Pacific 45,958 -5,355 -10.4 40,505 -12.0 -3,168 -9.9 -2,843 -9.9 -656 -7.0
China 22,817 1,494 7.0 22,513 5.9 1,762 15.8 34 0.3 301 18.0
Europe 75,059 -10,664 -12.4 128,506 -12.5 -4,695 -10.4 -7,976 -14.3 -2,006 -13.4
India 3,447 -35 -1.0 4,352 -3.1 -15 -2.8 10 0.3 30 12.3
Latin America 7,461 -1,535 -17.1 18,508 -18.5 -722 -18.9 -1,059 -15.7 -246 -15.7
North America 92,806 3,897 4.4 342,302 3.2 1,515 2.1 2,623 8.1 241 1.5
World 250,145 -12,420 -4.7 52,432 -6.2 -5,450 -3.3 -9,311 -6.6 -2,341 -5.4

The regional breakdown in Table 1 reveals that Europe was responsible for USD 10.7 trillion of the aggregate loss, twice the USD 5.4 trillion lost by the Asia-Pacific region excluding China and India. In percentage terms though, the declines in Europe and Asia-Pacific are quite similar (12.4% vs 10.4%, respectively) and below the 17.1% reduction experienced by Latin America. Note also that in percentage terms China is significantly ahead of North America (7.0% vs 4.4%), in part because the gains in the United States were offset by losses in Canada.

Interestingly the losses recorded for the regions all vanish when currencies are valued at constant (average) exchange rates rather than the rates prevailing at mid-2014 and mid-2015. Figure 1 shows that Europe did almost as well as North America if exchange rates are held constant, and Asia-Pacific did better than China. In both India and Africa small losses are transformed into small gains. The fact that the wealth declines observed last year depend so heavily on the prevailing exchange rate cautions against giving too much attention to the consequences of these setbacks, which may well be reversed in the near future.

Figure 1

Change in total wealth (USD bn) by region, 2014-2015: current vs constant exchange rates

Source: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Databook 2015

Another point to note in Table 1 is that financial assets fell by only 3.3% worldwide while non-financial assets declined by 6.6%, so the share of financial assets rose in the global household portfolio. This is consistent with the increasing importance of financial assets observed in recent years, which has been driven in turn by rapidly increasing equity prices in the United States and other countries. But it also reflects the fact that countries with greater shares of non-financial assets have more often been subject to adverse exchange rate movements. The breakdown in Table 1 shows no consistent pattern of financial assets across regions. Instead the overall global trend appears to originate primarily from two sources: the growth of financial assets in Europe, relative to non-financial assets (and before exchange rate changes are factored in); and the fact that financial assets accounted for the entire wealth growth in China.

The regional distribution of wealth

The geographical imbalance in global household wealth is evident from Figure 2, which compares the share of net worth of each region with its share of the adult population. North America and Europe together account for 67% of total household wealth but contain only 18% of the adult population. The shares of global wealth in the two regions have been quite similar recently, with Europe’s greater population compensating for much higher average wealth in North America. This is no longer the case: the divergence in growth performance this year has propelled North America further ahead with a current share of 37% compared to 30% for Europe.

Figure 2

Wealth and population by region, 2015

Source: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Databook 2015

In each of the other regions the share of wealth fails to match the population share. The deficiency is modest in the Asia-Pacific region (excluding China and India), where 24% of global adults account for 18% of global wealth; but elsewhere, the disparity between population and wealth is increasingly apparent. Despite enormous gains this century, China accounts for 21% of the adult population of the world, yet only 9% of global wealth. The ratio is similar for Latin America: 8% to 3%. But for Africa and India, the population share exceeds the wealth share by a factor of more than ten.

China has been the outlier in equity price movements

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 often easy to comprehend by considering movements in asset prices and exchange rates. A year ago, the global picture reflected a worldwide surge in equity prices averaging above 20%. This year they have tended to move in the opposite direction. Market capitalization fell by 35% in Russia, the most among the G8 countries shown in Figure 3. But Canada and Italy also experienced double digit losses, and declines in France, Germany and the United Kingdom averaged 8%. Equity prices moved slightly upwards in the United States and India, and by a little more in Japan, although this reflects yen depreciation against the dollar. The exception is clearly China, for which market capitalization rose by almost 150% in the year to end-June 2015. At one point during the year, equity prices had more than trebled. This had less impact on household wealth in China than might be expected, because financial assets account for just half of household wealth, and equities comprise a small proportion of financial assets. By the same token, the subsequent sharp reversal in equity values experienced from mid-June onwards will have had a limited downside effect, although this will be magnified during the forthcoming year by any yuan-USD depreciation.

Excluding China, the market capitalization pattern shown in Figure 3 is broadly representative of the rest of the world. Hong Kong rose 40% on the coat tails of China, and Ukraine posted gains even greater than China, although much was due to inflation. Among the losses, Brazil, Norway and Portugal were among the countries (in addition to Russia) shedding more than 25% of value, and Greece – unsurprisingly – came bottom with a loss of 55%.

Movements in equity prices and market capitalization reflect changes in the financial wealth of households. For the non-financial component, house price movements are a useful proxy. Around the globe, house prices were relatively stable, with 75% of countries recording gains, typically between the 3% achieved in Germany and the 9% recorded for the United Kingdom. Hong Kong, Ireland and Turkey did slightly better. Greece was again among the biggest losers, but this time tied with Poland and China with a loss of about 5%.

Figure 3

Change in market capitalization, house prices and USD exchange rate (%), 2014–2015

Source: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Databook 2015

Exchange rate changes reduce global wealth by USD 25 trillion

As Figure 2 suggests, equity and house price movements have been dwarfed by exchange rate changes. Unusually, every country depreciated against the dollar apart from China which recorded a tiny appreciation (0.1%) and those countries whose currencies are pegged to the dollar. The United Kingdom fell by 8%, Canada by 15%, Japan by 17%, and the Eurozone by 19%. At the end of June 2015, the Russian ruble was down 39%, itself much improved from several months earlier when the loss peaked at 51%. Ukraine depreciated by a similar amount. The USD exchange rate also worsened in Brazil, New Zealand, Norway and Turkey by more than 20%. Overall, dollar appreciation against other currencies reduced global wealth by roughly 10%, eliminating more than half of the rise in wealth per adult since the end of the financial crisis.

Winners and losers among countries

The United States again tops the list of countries with wealth rises, with an increase of USD 4.6 trillion. This is well below the USD 9 trillion gained the year before, but still substantial in the global context. Wealth also increased in China by a significant USD 1.5 trillion, and in the United Kingdom by a more modest USD 350 billion. But no other country gained more than USD 100 billion. In contrast, wealth fell by USD 100 billion or more in 27 countries, and in excess of USD 500 billion in nine countries (see Figure 4). Some of these – most notably France, Germany, Italy and Spain – were Eurozone countries which exchange rate fluctuations had favored a year ago. But Australia and Canada also shed more than USD 1.5 trillion between them, and wealth fell substantially again in Japan, this time by USD 3.5 trillion.

Figure 4

Change in total wealth 2014-2015 (USD bn): biggest gains and losses

Source: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Databook 2015

The larger, richer countries are better placed to absorb these losses, especially when they reflect exchange rate movements which impinge little on daily life. Expressing the wealth changes in percentage terms focusses attention on smaller countries for which the gains and losses may have greater significance. As Figure 5 indicates, the large absolute gain in the United States translates into a relatively modest rise of 6%, a little more than Saudi Arabia (which is pegged to the US dollar), but less than China which registered a rise of 7%. Hong Kong topped the list by a small margin with an increase of 8%, reflecting solid rises in equity values and house prices combined with a dollar peg.

 Figure 5

Change in household wealth (%) 2014-2015: biggest gains and losses

Source: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Databook 2015

Significant percentage losses were common this year, so only those exceeding 15% are displayed in Figure 5. Greece might have been expected to prop up the table, given adverse equity and house price movements combined with a depreciating euro. However, the resultant 17% drop in household wealth was in the midst of many other Eurozone countries: Austria, Finland, France, Italy and Portugal, and better that Norway, Turkey and Brazil, none of whose economic setbacks received the same attention as those of Greece. Russia and Ukraine fared significantly worse than any other country, shedding around 40% of net worth, mainly due to adverse exchange rate movements.

Wealth per adult across countries

The global average net worth figure of USD 52,400 per adult masks considerable variation across countries and regions, as is evident in Figure 6. The richest nations, with wealth per adult over USD 100,000, are found in North America, Western Europe and among the rich Asia-Pacific and Middle Eastern countries. This year there was more movement than usual amongst the country positions at the very top. The average wealth of Switzerland was down by USD 24,800 to USD 567,000, but Switzerland still heads the list and remains the only country where wealth per adult has exceeded USD 500,000. Official New Zealand estimates for household financial assets have been revised substantially upwards, leading us to place New Zealand in second position both this year and last, despite a fall from USD 484,800 to USD 400,800. Australia also experienced a drop in average wealth from USD 422,400 to USD 364,900, but retained its ranking (now third).

Figure 6

World wealth levels 2015

Source: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Databook 2015

The United States moved up to fourth place with USD 353,000 per adult, overtaking Norway (USD 321,400) which moved in the opposite direction. Sweden (USD 311,400), France (USD 262,100) and Belgium (USD 259,400) also experienced significant declines in average wealth and slipped down the ranking, while the gain in the United Kingdom (USD 320.400, up USD 5,300) and the more modest loss in Singapore (USD 269,400, down USD 20,800) move both countries up two places to sixth and eighth positions, respectively.

The ranking by median wealth per adult favors countries with lower levels of wealth inequality and produces a somewhat different ranking. On the basis of the revised data, we put New Zealand in second place in mid-2014 and conclude that this year its median wealth of USD 182,600 displaces Australia (USD 168,300) at the top of the list, where it had remained since 2008. Both countries are significantly ahead of third place Belgium (USD 150,300) and the United Kingdom (USD 126,500), which moved up to fourth place. Norway follows with median wealth of USD 119,600, then Switzerland (USD 107,600), Singapore (USD 98,900), Japan (USD 96,100), Italy (USD 88,600) and France (USD 86,200). Despite a rise in median wealth this year to USD 49,800, the United States still lags well behind all these countries, although the value is similar to that of Spain and Denmark, and is above the median value of USD 43,900 in Germany.The rich country group with wealth per adult above USD 100,000 has very stable membership over time. Greece has been on the margin of the group for many years, moving in and out in response to changes in the euro-dollar exchange rate. The decline this year to USD 81,300 places it firmly outside the top group, alongside Portugal whose wealth per adult is USD 73,800. Wealth per adult in Greece peaked at USD 136,800 in 2007, so it is likely to be many years before Greece recovers to the pre-crisis level.

Intermediate wealth

The ‟intermediate wealth” group portrayed in Figure 5 covers countries with mean wealth in the USD 25,000 to USD 100,000 range. Some European Union (EU) countries (Greece, Portugal and Slovenia) are situated at the top end of the band, while more recent EU entrants (Czech Republic, Estonia, Hungary) tend to be found lower down. The intermediate wealth group also encompasses a number of Middle Eastern nations (Bahrain, Oman, Lebanon and Saudi Arabia) and important emerging markets in Asia and Latin America (Chile, Costa Rica, Korea and Uruguay). However, the adverse exchange rate movements this year have been sufficient to push a number of countries below the USD 25,000 threshold, including Colombia, Malaysia and a quartet in Europe (Croatia, Lithuania, Poland and Slovakia).

Frontier wealth

 The ‟frontier wealth” range from USD 5,000 to 25,000 per adult covers the largest area of the world and most of the heavily populated countries including China, Russia, Brazil, Egypt, Indonesia, the Philippines and Turkey. The band also contains most of Latin America (Argentina, Bolivia, Columbia, Ecuador, El Salvador, Mexico, Panama, Paraguay, Peru and Venezuela), many countries bordering the Mediterranean (Algeria, Jordan, Morocco, Tunisia and West Bank and Gaza) and many transition nations outside the EU (Albania, Armenia, Azerbaijan, Bosnia, Georgia, Kazakhstan, Macedonia, Mongolia and Serbia). South Africa was once briefly a member of the intermediate wealth group, but now resides in this category alongside other leading sub-Saharan nations: Angola, Botswana, Equatorial Guinea and Namibia. Sri Lanka, Thailand and Vietnam are promising Asian members of the group, alongside Malaysia which may well soon return to group above. As already noted, Lithuania, Poland and Slovakia have fallen into the group this year, joining another EU member, Latvia. Far less movement was observed at the lower boundary, although Bolivia bucked the general worldwide trend by moving up into the frontier wealth band, while Kyrgyzstan went in the opposite direction.

The final group of countries with wealth below USD 5,000 is heavily concentrated in central Africa and south Asia. This group encompasses all of central Africa apart from Angola, Equatorial Guinea and Gabon. India is the most notable member of the Asia contingent, which also includes Bangladesh, Cambodia, Myanmar, Nepal, and Pakistan. Languishing in the middle of this wealth range are also three countries bordering the EU: Belarus, Moldova and Ukraine.

Distribution of wealth across individuals and wealth inequality

To determine how global wealth is distributed across households and individuals – rather than regions or countries – we combine our data on the level of household wealth across countries with information on the pattern of wealth distribution within countries. Once debts have been subtracted, a person needs only USD 3,210 to be among the wealthiest half of world citizens in mid-2015. However, USD 68,800 is required to be a member of the top 10% of global wealth holders, and USD 759,900 to belong to the top 1%. While the bottom half of adults collectively own less than 1% of total wealth, the richest decile holds 87.7% of assets, and the top percentile alone accounts for exactly half of total household wealth.

Last year’s report reported in detail on trends in wealth inequality. The shares of the top 1% and top 10% in world wealth fell during 2000-2007, that of the top percentile from 48.9% to 44.8%, for example. But the trend has reversed since 2008 and the additional rise this year takes the share of the top percentile to a level not observed since 2000 and possibly not seen for almost a century. However, the share of the top decile remains below the 88.3% level achieved in 2000.

While there are reasons why wealth inequality may be on a secular upward path, the year on year changes are heavily influenced by the relative importance of financial assets in the household portfolio, as we explore in more detail in the next section of this report. There are strong reasons to think that the rise in wealth inequality since 2008 is mostly related to the rise in equity prices and to the size of financial assets in the United States and some other high-wealth countries, which together have pushed up the wealth of some of the richest countries and of many of the richest people around the world. The jump in the share of the top percentile to 50% this year exceeds the increase expected on the basis of any underlying trend upwards. It is consistent, however, with the fact that financial assets continue to increase in relative importance, and that the rise in the USD over the past year has given wealth inequality in the United States – which is very high by international standards – more weight in the overall global picture. When these considerations apply in reverse, the wealth shares of the top 1% and 10% are likely to decline.

Wealth distribution across regions

Figure 7

Regional composition of global wealth distribution 2015

Source: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Databook 2015

Assigning individuals to their corresponding global wealth decile (i.e. population tenth) enables the regional pattern of wealth to be portrayed, as in Figure 7. The most prominent feature is the contrast between China and India. Relatively few adults in China are found in the bottom half of the global wealth distribution, but they dominate the upper middle section, accounting for 43% of worldwide membership of deciles 6–8. The sizeable presence of China in the upper middle section reflects not only its population size and growing average wealth, but also wealth inequality which, despite a rapid increase in recent years, is not among the highest in the developing world. China’s record of strong growth this century, combined with rising asset values and currency appreciation, has shifted its position in Figure 7 towards the right. It now has more people in the top 10% of global wealth holders than any other country except for the USA and Japan, having moved into third place in the rankings by overtaking France, Germany, Italy and the United Kingdom. In contrast, residents of India are heavily concentrated in the lower wealth strata, accounting for over a quarter of people in the bottom half of the distribution. However, its extreme wealth inequality and immense population mean that India also has a significant number of members in the top wealth echelons.

Residents of Latin America are fairly evenly spread across the global wealth spectrum in Figure 7. The Asia-Pacific region (excluding China and India) mimics the global pattern more closely still. However, the apparent uniformity of the Asia-Pacific region masks a substantial degree of polarization within the region. Residents of high-income Asian countries, such as Hong Kong, Japan and Singapore, are heavily concentrated at the top end: half of all adults in high-income Asian countries are in the top global wealth decile. In contrast, inhabitants of lower-income countries in Asia, such as Bangladesh, Indonesia, Pakistan and Vietnam, tend to be found lower down in the wealth distribution. In fact, when high-income countries are excluded from the Asia-Pacific group, the wealth pattern within the remaining countries resembles that of India, with both regional groupings contributing about one quarter of the bottom half of wealth holders.

Africa is even more concentrated in the bottom end of the wealth spectrum: more than 40% of African adults belong to the two lowest global wealth deciles. At the same time, wealth inequality is so high in Africa that some individuals are found among the top global wealth decile, and even among the top percentile. Interestingly, North America and Europe also contribute many members to the bottom wealth decile, a reflection of the greater ease with which individuals – especially younger individuals – can acquire debt in these regions. Overall, however, North America and Europe are heavily skewed toward the top tail, together accounting for 63% of adults in the top 10%, and an even higher percentage of the top percentile. Europe alone accounts for 36% of members of the top wealth decile, and the proportion this century has been as high as 42% when the euro-dollar exchange rate was more favorable.

The spectrum of world wealth

Wealth is one of the key components of the economic system. It is valued as a source of finance for future consumption, especially in retirement, and for reducing vulnerability to shocks such as unemployment, ill health or natural disasters. Wealth also enhances opportunities for informal sector and entrepreneurial activities, when used either directly or as collateral for loans. These functions are less important in countries that have generous state pensions, adequate social safety nets, good public healthcare, high quality public education and well-developed business finance. Conversely, the need to acquire personal assets is particularly compelling and urgent in countries that have rudimentary social insurance schemes and reduced options for business finance, as is the case in much of the developing world.

The Credit Suisse Global Wealth Report offers a comprehensive portrait of world wealth, covering all regions and countries, and all parts of the wealth spectrum from rich to poor. Valued at current exchange rates total global wealth fell this year by USD 12.4 trillion, a consequence of strong dollar appreciation in all parts of the world. However, when exchange rate movements are discounted, the underlying wealth trends remain broadly healthy as they have been for most of this century. The United States again led the world in wealth advancement, aided by China which added USD 1.8 trillion to the stock of global financial assets.

The top ten countries in the wealth-per-adult league include many smaller, dynamic economies –

Belgium, New Zealand, Norway, Singapore, Sweden and Switzerland – as well as Australia, France, the United Kingdom and the United States. Notable cases of emerging wealth are found in Chile, the Czech Republic, Lebanon, Slovenia and Uruguay, while ‟frontier” wealth is evident in Ecuador, Egypt, Indonesia, Malaysia, Thailand and Tunisia.

For a number of reasons, wealth varies greatly across individuals. Our estimates suggest that the lower half of the global population collectively own less than 1% of global wealth, while the richest 10% of adults own 88% of all wealth, and the top 1% account for half of all assets in the world. Over time, this may change, particularly if the US dollar’s strength begins to wane or a sufficient number of low-wealth countries experience rapid growth. In the meantime, the trend in recent years has been towards increasing inequality, propelled in part by the rising share of financial assets which are disproportionately held by the more wealthy individuals.

 

Concepts and methods

Net worth or “wealth” is defined as the value of financial assets plus real assets (principally housing) owned by households, less their debts. This corresponds to the balance sheet that a household might draw up, listing the items which are owned and their net value if sold. Private pension fund assets are included, but not entitlements to state pensions. Human capital is excluded altogether, along with assets and debts owned by the state (which cannot easily be assigned to individuals).

 For convenience, we disregard the relatively small amount of wealth owned by children on their own account, and frame our results in terms of the global adult population, which totaled 4.8 billion in 2015.

 The “Asia-Pacific” region excludes China and India, which are treated separately due to the size of their populations.

 Data for 2014 and 2015 refer to mid-year (end-June) estimates; the figures for earlier years indicate year-end values unless indicated otherwise.

 

 

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