Global wealth report

Tuesday, 01 February 2011
A look at who will be the winners according to a new world wealth report.

The Credit Suisse Research Institute has just published its inaugural Global Wealth Report and Global Wealth Databook with the aim of providing the most comprehensive study of world wealth. The Report finds that the global wealth currently held by 4.4 billion adults has increased 72 per cent since 2000 and reached today USD195 trillion. The Report adds to existing work by analysing in detail this global wealth across countries and regions, and examining how it has changed over the past decade. The report looks not only at the top of the wealth pyramid, as is regularly the case, but it also focuses on the bottom of the pyramid and even looks at differences in gender.

In this article, we summarise the key conclusions of the report. Full details on sources and methodology is provided in the 120-page Credit Suisse Wealth Databook.

Key findings

The Global Wealth Report is based on data as of mid-2010 across more than 200 countries. It was produced by the Credit Suisse Research Institute in collaboration with Professors Anthony Shorrocks and Jim Davies: two of the world’s foremost experts on the topic of global household wealth. The Report defines wealth as the value of financial assets and non-financial assets (mainly real estate), minus household debt.

The Report confirms that Asia Pacific countries, which now make up the bulk of the world’s middle class of emerging consumers, are driving the growth of the world’s wealth. China is the third-largest wealth market in the world. Economic expansion in other key markets in Asia Pacific means that today, growth in average household wealth per adult is up to ten times the global growth rate.

A further important finding is the emergence of the middle segment of the wealth pyramid, which is composed of 1 billion individuals located in the fastest-growing economies of the world. They have average wealth per adult of USD10,000 to USD100,000. This middle class of wealth holders owns one-sixth or USD32 trillion of global wealth. And in total, almost 60 per cent, or 587 million individuals, in the middle segment are located in Asia Pacific.

The Report states that wealth provides people in the middle segment of the wealth pyramid with the financial security they need to become the world’s emerging consumers. The middle segment is therefore expected to replace indebted US households as the global growth locomotive. This underpins Credit Suisse’s research on the topic of Megatrends, notably on Demographics and the Multipolar World.

As seen in Figure 1, below, the middle segment of the wealth pyramid holds only one-sixth of global wealth, many of whose ability and desire to consume is changing rapidly.

China stands out as the third-largest wealth generator in the world, behind only the US and Japan, and is 35 per cent ahead of the wealthiest European country, France. The Credit Suisse Research Institute believes that wealth provides people in the middle segment with the financial security they need to become the world’s emerging consumers and that the middle segment will replace indebted US households as the global economic growth locomotive.

We estimate that driven by robust economic expansion in the emerging markets, global wealth could grow 61 per cent to USD315 trillion by 2015. These projections to 2015 are based on regressions of the correlation between Gross Domestic Product (GDP) growth, wealth and starting levels of wealth per adult, combined with the International Monetary Fund’s forecasts for GDP. All current data relate to mid-2010 and are at then-current market exchange rates (not purchasing power parity).

The Report also provides valuable data for important top-down investment analysis and puts current market concerns about government indebtedness into context by showing that the estimated USD45 trillion in global government debt in mid-2010 represents less than a quarter of the USD195 trillion in global household wealth.

The wealth pyramid

Top of the pyramid

At the top of the wealth pyramid, there are over 1,000 billionaires globally, of which 245 are in Asia Pacific, 230 are in Europe and 500 are in North America. Moving down the wealth pyramid, there are 80,000 ultra-high-net-worth individuals (average wealth per adult above USD50 million). Of the 24 million other high-net-worth individuals (average wealth per adult of USD1 million to USD50 million), just over 800,000 are in China, around 170,000 are in India and over 4 million are in the rest of Asia Pacific. Below this, more than 330 million individuals have average wealth per adult of USD100,000 to USD1 million.

Switzerland and Norway have emerged as the richest nations in the world in terms of average wealth per adult, which stands at USD372,692 and USD326,530 respectively. They are followed by Australia, which is in third place with average wealth per adult of USD320,909 and Singapore with average wealth per adult of USD255,488. Figures for Australia and Singapore have both doubled in the last decade.

Base of the pyramid

There are 3 billion people with average wealth per adult of below USD10,000, of which 1.1 billion own less than USD1,000 and 307 million are in India. Some 2.5 billion people are as yet unbanked. As the wealth of this significant group grows, it will both require and fuel the creation of new financial services.

Two emerging trends are new e-payment systems and microfinance (to date, 154 million people globally use microfinance) which have thrived in countries where banking systems have been either underdeveloped or more oriented towards the rich. These innovations have enabled the creation of new wealth in countries such as Mexico, Indonesia and Bangladesh.

Emerging wealth

In the Middle East, The Credit Suisse Research Institute estimates that average wealth per adult in Qatar stands at USD109,369, which is higher than that of Korea, Greece, Portugal and Spain, and is only just below the European average. Similarly, wealth per adult for the United Arab Emirates has reached USD150,000, which is higher than that of the Netherlands.

China stands out as the third-largest wealth generator in the world, with total household wealth of USD16.5 trillion, behind only the US (USD54.6 trillion) and Japan (USD21.0 trillion). If historic growth trends continue, total household wealth in China could rise 111 per cent to USD35 trillion by 2015, outstripping Japan to become the second highest in the world.

Wealth has also surged in other emerging markets in Asia Pacific, especially India and Indonesia. The total wealth of India has tripled in a decade to USD3.5 trillion, while Indonesia’s has grown five-fold to USD1.8 trillion. By 2015, based on current trends, India’s wealth could nearly double to USD6.4 trillion while Indonesia’s could grow as impressively, taking it to over USD3 trillion.

Major developed economies top the global household debt league table

The Report finds that major developed economies top the global household debt league table, compared with the relatively low household debt levels in the emerging countries. There is a clear correlation between household debt and wealth per adult: a high level of wealth per adult in a country facilitates greater access to credit, which can have both positive and negative effects. On the one hand it encourages economic development, but on the other hand it can lead people to become over-leveraged.

The US heads the global household debt league table, with total debt of USD14 trillion, followed by Japan with USD4 trillion and Germany with USD2 trillion. Household debt in developed countries has significantly outsized that of the emerging economies. South Korea has the largest household debt in the emerging markets of Asia at USD830 billion, representing 6 per cent of the total household debt of the US. Denmark ranks first in terms of average debt per adult (USD113,978) and Switzerland second (USD100,651).

The credit crisis has taken its toll

The Report finds that the credit crisis took a toll, especially on countries where non-financial wealth had risen rapidly. The value of non-financial assets (i.e. property) in Ireland fell from a level of USD166,000 in 2007 to USD103,000 as of mid-2010. Similarly, in the same period, the value of non-financial assets fell from USD118,500 to USD89,444 in Spain and from USD23,000 to USD15,685 in Estonia.

Gender dimensions of wealth holdings

Gender wealth distribution receives much less attention than gender equality in income, which itself is an important and widely debated issue. In the future, with the rise of more female entrepreneurs and executives, the gender aspect of wealth generation will grow in importance, the report states. For example, in the US, among the wealthy, female net worth is 98 per cent of that of males. Overall, data from the US and the UK show that wealthy women on average are older than wealthy men and more likely to have gained their assets through inheritance.

 

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Michael O’Sullivan, Dr Ariel Sergio Goekmen

Michael O’Sullivan is Head of Research for Credit Suisse. Dr Ariel Sergio Goekmen TEP is Sector Head UK Offshore at Credit Suisse AG Zurich. 

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