The International Monetary Fund (IMF) entitled its World Economic Outlook report for the final quarter of 2018 Challenges to Steady Growth. Not the most eye-catching headline, perhaps, but one that reflects the fact that the economic cycle, especially in developed economies, is poised for a period of recalibration after the stellar growth seen in some countries in 2017 and 2018. These economies are now more likely to feel the effect of monetary tightening and the impact of geopolitical and economic policy headwinds.
This outlook is reflected in the five-year forecasts for the number of people joining the ranks of the world’s ultra-wealthy, prepared by wealth data specialists GlobalData WealthInsight.
Some 42,711 people, roughly equal to the number of runners in the London marathon, will see their wealth rise to US$30 million or more between 2019 and the end of 2023. This will take the number of UHNWIs worldwide to almost 250,000.
While this 22% increase represents an acceleration in growth compared with the past five years, when UHNWI numbers rose by 18%, the average year-on-year increase of 4% is more measured than the 10% growth seen in 2017 alone.
A mixed outlook
“Equity markets, real estate markets and luxury investments all had a stellar year in 2017. Growth in 2018 has been good in some cases, but has not replicated the levels seen in 2017, and the outlook reflects more mixed conditions ahead,” says Oliver Williams, Head of GlobalData WealthInsight.
Even so, 2019 marks the point when the number of people globally with US$1 million or more in net assets – HNWIs – will exceed 20 million for the first time, according to GlobalData WealthInsight. Some 6.6 million of these individuals will be based in North America, with 5.9 million in Europe and a further 5.8 million in Asia.
Mr Williams highlights the link between entrepreneurialism and wealth creation. “The ease with which a business can be created affects the number of wealthy entrepreneurs in a country and also the spread of wealth,” he says.
“The easier it is, the more equal wealth is among HNWIs. Countries where building a business is more challenging, whether due to regulation or culture, tend to have a higher concentration of wealth and therefore a disproportionate number of UHNWIs and billionaires.”
Asia is the biggest hub for billionaires, with numbers in the region set to rise above 1,000 by 2023, accounting for more than a third of the world’s billionaire population of 2,696. China in particular has seen a sharp rise in the number of billionaires in the last five years, but growth looks set to moderate in the medium term.
Meanwhile, the ranks of the ultra-wealthy – those with net assets of more than US$30 million – expanded by 7,091 in 2018, a rise of 4%. “Growth in non-financial assets – that is, real estate – has been one of the leading factors driving UHNWI growth,” says Mr Williams. “Other factors include returns from both traditional and alternative investments, along with growth conditions in major economies.”
However, growth has been characterised by marked geographical differences, he adds. “In North America, financial assets are a major growth driver at the moment. In Europe and Asia, real estate is most important. Meanwhile, Latin American economies are particularly affected by fluctuations in the US dollar exchange rate.”
As the data for The Wealth Report is expressed in US dollars, the movement of the dollar is also factored in. “The performance of the US dollar impacts millionaires in many countries. When the US dollar is appreciating rapidly against certain currencies, the number of HNWIs can decrease even though their wealth in local currency terms remains the same.
So it’s one of the factors we have considered in our forecast model,” Mr Williams says. While the expansion of wealth populations is expected to be broadly steady in each of the next five years, some regions will out-perform. The population of UHNWIs in Asia,for example, is expected to rise by 23%, compared with 18% growth in North America.
Echoing the trends seen in previous editions of The Wealth Report, Asian countries will see the biggest growth in UHNWIs over the next five years. India leads with 39% growth, followed by the Philippines (38%) and China (35%). Of the 59 countries and territories in our forecasts, eight of the top ten countries by future growth are in Asia, with Romania and Ukraine taking the remaining spots.
However, it is worth noting that some of these countries are starting from a low base. For example, Romania will have 278 UHNWIs by 2023, while Ukraine will have 485. The Philippines is forecast to have 296 UHNWIs by 2023, less than 2% of the ultra-wealthy population of Japan, the biggest Asian wealth hub with 20,570.
In Africa, Kenya leads the way, with 24% forecast growth by the end of 2023. This fits with more upbeat economic forecasts for Kenyan GDP in the coming years, yet risks remain to this economic outlook as the government looks to narrow its fiscal deficit. The number of ultra-wealthy people in the country is set to reach 155 in 2023, making up 6% of the total UHNWI population in Africa.
South Africa will remain the largest wealth hub in the region, with a 32% share of the ultra-wealthy population in five years’ time. Africa as a whole will see its UHNWI population grow by 31% between 2013 and 2023.
In Latin America, the upheavals in the Brazilian economy mean that the UHNWI population will not regain the levels seen in 2014 by 2023, even as the country emerges from recession. However, Brazil will still be the continent’s biggest wealth hub in five years’ time with 3,962 UHNWIs. But strong forecast growth – some 23% between 2018 and 2023 – means that Mexico will be catching up quickly, with a predicted population of 3,427 UHNWIs in five years’ time.
The forecast growth in ultra-wealthy people chimes with the findings of this year’s Attitudes Survey, which shows that the majority of UHNWIs expect their wealth to increase in 2019. However, there is divergence in the strength of this sentiment, with four-fifths of wealth advisers in the US expecting their clients’ wealth to rise in 2019, compared with just under two-thirds in Asia.
There is more alignment on the challenges posed by the local political and economic environment, however. Some 65% of Asian respondents to the Attitudes Survey, along with 59% of those in the US, said that local conditions would make it more difficult to create and retain wealth in the future.
Growth in Mexico's UHNWI population is set to outstrip its Latin American neighbours.
Rising trade tensions between China and the US will have an impact on wider global growth as well as on both countries, predicts Mr Williams. But Ian Bremmer, president and founder of Eurasia Group, the leading global political risk research firm, believes that the effect may be more muted than expected, at least in the short term.
“Any tensions between the world’s two largest economies draw outsized attention,” he points out. “There are plenty of areas where these two countries will see significant conflict next year, most importantly around technology.
But against the backdrop of a softer economy, both leaders are looking for excuses to avoid further trade escalation. We won’t see an allout ‘trade war’ in 2019.”
Any escalation in trade tensions has the potential to affect all households. In its World Economic Outlook, the IMF says: “An intensification of trade tensions, and the associated rise in policy uncertainty, could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade.
“Higher trade barriers would disrupt global supply chains and slow the spread of new technologies, ultimately lowering global productivity and welfare. More import restrictions would also make tradable consumer goods less affordable, harming low-income households disproportionately.”
Finding ways to respond to this risk falls within the remit of the World Economic Forum. This year’s annual meeting in Davos, under the heading “Globalization 4.0”, aimed to encourage policymakers to come up with an approach to globalisation that would minimise nationalistic and protectionist policies.
The response from UHNWIs, as highlighted in our interviews with Jochen Zeitz and Richard Branson, co-founders of The B Team is to look at ways in which businesses can join together to be a force for positive social change, and lobby governments to work together on joint goals.
The search for stability
This fits with Ian Bremmer’s assessment of recent geopolitical developments. “As inequality grows – and, with it the disenfranchisement of large parts of society – the response of UHNWIs needs to be ‘how can we fix this?’”, he says. However, he adds: “The more immediate response is, ‘What can I do to protect my family?’"
This is borne out in the global residential real estate trends seen over the last two years. “The footprint of the ultra-wealthy is growing larger when it comes to property investment.
Ten or 15 years ago, UHNWI residential property investment would have been driven largely by where children were to be educated,” notes Andrew Hay, Global Head of Residential at Knight Frank.
“Education is still a key consideration – but UHNWIs are also becoming more strategic in response to global uncertainty and political upheavals, investing in additional homes in cities and countries where they can see greater levels of stability,” he adds.
In the years to come, growing economic and geopolitical challenges – such as rising interest rates, the withdrawal of fiscal stimulus, slowing economic growth and trade tensions, not to mention Brexit and the ongoing upheaval in the Middle East – are set to translate into moderate wealth creation, but also a search among the ultra-wealthy for stability, both personally and in terms of their assets.