Figures show that households' financial wealth rose sharply last year, but already there are concerns about whether the pace can be sustained.
Households in Switzerland ranked top of the tree in terms of net per capita financial assets last year while globally, households' financial wealth rose by 7.7 per cent last year, but there are concerns about political risks, rates and debt, a report by Allianz says.
The Europe-based group said in its ninth edition of its Global Wealth Report that 2017 was “exceptional in how investors enjoyed rising markets, shrugging off political volatility". Standout gains were seen in Asia (ex-Japan), up by 12.2 per cent, while in mainland China, wealth rose by 14 per cent from the previous year. Growth in households’ debt moved sideways, to 15.8 per cent from 16.5 per cent. Their debt ratio rose to 49.2 per cent, up by more than 10 percentage points in five years. The main driver behind the ratio’s rise is the increased indebtedness of mainland China.
Swiss households net per capital financial assets were €173,990 ($202,117), ahead of €168,640 in the US.
"Last year was a very good year for savers," Michael Heise, chief economist of Allianz, said. "But it was as good as it gets, the post-crisis era is over for good. Gone are the times when an extremely expansive monetary policy provided for a continuous and steady upward trend on financial markets.”
“The signs are already worrying: Rising interest rates, trade conflicts, and increasingly populistic politics cause tensions and turbulences. The first month of this year gave already a bitter foretaste," he said, referring to sharp falls in stocks at that time.
The report adds to others studies by organisations such as Credit Suisse, Capgemini and Boston Consulting Group that point to rising wealth - although the Allianz report touches on the broad population, not just among high net worth persons. A continued challenge for firms, however, is that the expanding wealth hasn't always meant improved margins and profits, because of how rising regulatory costs and consumer demands have made their job arguably more difficult than before. In Asia, for example, the rise of a large and affluent middle class hasn't meant all private banks have had an easy living: several, such as Societe Generale, Barclays and ABN AMRO, for example, have sold Asian private banking arms to local firms.
On average, net financial assets per capita reached €8,220 ($9,547) in Asia (ex Japan), roughly on par with the average level in Eastern Europe's EU members (€8,970) but much higher than in Latin America (€5,540). Besides Japan, two other Asian markets -- Singapore and Taiwan -- are in the top ten of the list of the richest markets (financial assets per capita).
At the top of the list, Switzerland re-captured the top spot that it lost the year before to the US. In general, European markets did better in 2017 than in previous years; this, however, reflects first and foremost a stronger euro.
Investors have fallen back in love with equities after shunning the asset class immediately after the 2008 financial shock.
Equities’ share of all savings in 2017 reached almost a fifth of fresh funds, even more than in the years preceding the crisis, the report said.
“In the context of booming stock markets, this meant that securities enjoyed by far the strongest growth of all asset classes in 2017, increasing by 12.2 per cent in total and representing over 42 per cent of all savings at the end of 2017. This is followed in second place by receivables from insurance companies and pensions, which account for 29 per cent of the asset portfolio and grew by 5.2 per cent last year,” it continued.
Shift from deposits
The report said that deposits fell out of favour with households around the globe. Only 42 per cent of new investments went into banks, compared with 63 per cent the year before. In absolute figures, this meant a drop of over €390 billion. As a result, growth in deposits declined by two percentage points to 4.3 per cent (share of asset portfolio almost 27 per cent).
"Savers finally recognized the signs of the times," said Kathrin Brandmeir, co-author of the report. "The withdrawal of love for bank deposits, particularly in the 'old' industrialised markets, came not a second too early because inflation staged a return. Price increases in these markets tripled in 2017 -- albeit still on low level. As a result, losses in purchasing power of bank deposits shot up too: They are estimated to add up to €400 billion in 2017 alone."