News Regional27 Sep 2018

Asia ex Japan:Region's financial asset growth slows but stays world's fastest

| 27 Sep 2018

Financial assets of households in Asia (ex-Japan) increased last year by 'only' 12.2%, the slowest increase in six years -- but still the fastest growth of any region worldwide, according to Allianz in its Global Wealth Report released yesterday.

The report says that the main ‘culprit’ was China where growth cooled considerably; however, with an increase of 14%, it remained the most dynamic country of the region.

In Asia, all asset classes clocked slower growth than in 2016; but growth in securities – with a plus of almost 20% – and in insurance and pensions assets (9.5%) remained strong. Moreover, securities remained also the dominating asset class in Asia’s private households’ portfolio, amounting to 46% of their total financial assets. Insurance and pension assets play still a minor role (portfolio share: 14%).

Growth in households’ debt moved sideward, however, on a high level, declining from 16.5% to 15.8% in 2017. As a result, the debt ratio climbed to 49.2%; this amounts to an increase of more than 10 percentage points in just five years. The main driver behind this increase in indebtedness is China. Net financial assets increased by 11.1%, the lowest increase since the financial crisis in 2008.

On average, net financial asset per capita reached EUR8,220 ($9,652) in Asia (ex-Japan), roughly at par with the average level in Eastern Europe’s EU members (EUR8,970) but much higher than in Latin America (EUR5,540).

Besides Japan, two other Asian countries – Singapore and Taiwan – are in the top 10 of the list of the richest countries in terms of financial assets per capita. South Korea (ranked 21st in 2017) might enter the Top 20 very soon. At the top of the list, Switzerland re-captured the top spot that it lost the year before to the US. In general, European countries did ibetter n 2017 than in previous years; this, however, reflects first and foremost a stronger euro.

The astonishing catch-up process in Asia becomes particularly clear in a long-term comparison, even if discounting population growth and inflation. Real asset growth per capita was 10.5% in Asia (excluding Japan) in the last decade, twice as high as in Latin America (5.3%) and almost three times as high as in Eastern Europe (3.8%). Industrialised countries are falling far behind in this analysis, with 2% growth since 2007 in the US, 1.3% in Western Europe and 1.1% in Japan.

Some Asian economies require close debt monitoring

Thanks to strong economic growth, the global debt ratio (liabilities as a percentage of GDP) increased only minimally to 64.3%. Michaela Grimm, co-author of the report, said, “However, in particular in Asia, there are some countries – Thailand, Malaysia, South Korea and China, for example – in which supervisory agencies should monitor developments very closely."

62% of the global middle wealth class hail from Asia

The last two decades of rapid globalisation have given rise to a new global wealth middle class, which included almost 1.1bn people at the end of 2017 and China's share has soared from just under 30% to over 50% in this period. Today, 62% of the global middle wealth class and 42% of the high wealth class are citizens of an Asian country.

In Asia (ex-Japan), the wealth distribution picture was rather mixed, with some countries such as South Korea or Singapore with signs of improving wealth distribution in recent years but other countries – Indonesia, Thailand or China – taking a turn for the worse.

A new indicator for the national distribution of wealth

To obtain a nuanced picture of national distribution in an international context, Allianz has introduced a new indicator in this report, the Allianz Wealth Equity Indicator (AWEI). Some of the results are surprising. Along with the ‘usual suspects’ of the US, South Africa, and the UK, countries where the distribution of wealth is relatively strongly distorted also include Denmark, Sweden and Germany. On the other hand, those countries where wealth distribution is relatively balanced include many eastern and western European countries, some of which are euro crisis countries such as Italy, Spain and Greece.

Asian countries can be found at the bottom of the list (Indonesia) as well as at the top of the list (South Korea). The region is much less homogeneous than often thought.

“Our new wealth equity indicator shows clearly that we should be wary of drawing hasty or generalised conclusions” said Allianz chief economist Dr Michael Heise. “Apart from the US, barely any country conforms to the cliché of wealth distribution that is already extremely distorted but is still getting worse. In most countries, shades of grey prevail.”

2017 deemed an exceptional year

Allianz's Global Wealth Report presents a study of the asset and debt situation of households in more than 50 countries.

The report describes 2017 as an exceptional year. Despite growing political tensions, 2017 was an almost perfect year for investors. The economic recovery following the financial crisis culminated in a synchronous upturn around the globe and financial markets performed strongly, particularly equity markets.

As a result, financial assets of households globally rose significantly by 7.7%. Global gross financial assets increased to EUR168trn.

“Last year was a very good year for savers,” Dr Heisse said, “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.”

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