The world’s ultra-wealthy people shed a combined $10 trillion, or 10 per cent, from their net worth in 2022, driven by the triple “shock” of global economic uncertainty, the energy crisis and the war in Ukraine, a report by property consultancy Knight Frank has said.
The super-rich in Europe were at the centre of the crisis, with ultra-high-net-worth individuals (UHNWIs) losing an average of 17 per cent from their fortunes, Knight Frank said in The Wealth Report 2023 on Wednesday.
Knight Frank defines UHNWIs as people who possess a net worth of $30 million or more, including primary residences and second homes not held as investments.
“Last year, the Ukraine crisis fuelled the European energy crunch and supercharged already surging inflation,” Liam Bailey, Knight Frank’s global head of research, said in the report.
“As a result, 2022 saw one of the sharpest upwards movements in global interest rates in history, leading to economic conditions which Collins English Dictionary neatly dubbed the ‘permacrisis’.”
Global economic uncertainty — compounded by the Russia-Ukraine war, high inflation and rising interest rates — has stoked volatility in global financial markets, which fell into bear territory in 2022 after a 13-year bull run.
Central banks around the world have been increasing interest rates to rein in inflation.
The US Federal Reserve has increased its benchmark rates eight times since March 2022 to bring inflation down from 40-year highs to a target range of 2 per cent.
In January, the International Monetary Fund raised its estimate for global economic growth in 2023 by 0.2 percentage points from its October forecast.
Growth is now estimated at 2.9 per cent for the year, following a 3.4 per cent expansion in 2022.
Although 40 per cent of UHNWIs saw their wealth increase in 2022, the overwhelming trend was negative for the world’s super-rich, driven by a change in residential and commercial property values, fixed income, investments of passion and other assets, Knight Frank said.
“The fall in wealth is unsurprising, given the dramatic pivot in monetary policy that culminated in the worst performance for the traditional blended portfolio since the 1930s,” it said.
While Europe had the largest decline in wealth in 2022, the Australasia region recorded an 11 per cent drop and the Americas 10 per cent. In comparison, Africa experienced the smallest decline with 5 per cent, followed by Asia and the Middle East at 7 per cent.
However, 69 per cent of wealthy investors surveyed by Knight Frank expect to grow their portfolios this year, with confidence driven by asset repricing, perceived value opportunities and an expected economic rebound.
About 33 per cent of respondents said their main goal in 2023 was capital appreciation and 25 per cent are focused on wealth preservation.
High-net-worth individuals (HNWIs) — defined as someone with a net worth of $1 million or more, including their primary residence — in the Asia-Pacific region are more optimistic about growth, while wealth preservation is the top goal in Europe and the US as interest rates take their toll on the economy.
“Expect increases in investment allocations, with almost a third of investors looking at property investments to provide an inflation hedge and diversification,” Knight Frank said.
“A cautious approach will see 29 per cent of investors reduce debt volumes.”
Meanwhile, an “ironic legacy” of the pandemic has been a surge in the desire for mobility, with 13 per cent of UHNWIs saying they plan to acquire a second passport or citizenship.
Singapore and Dubai are also expected to grow rapidly as wealth centres, the report found.
In a separate survey by Henley & Partners last September, Dubai was ranked the 23rd-most popular city in the world for ultra-wealthy residents.
The city’s population of HNWIs rose to 67,900, up from 54,000 in June last year, while the number of billionaires increased from one to 13 in 2022 and that of multimillionaires jumped to 3,170 from 2,480, Henley & Partners, which tracks private wealth and investment migration trends worldwide, said.
In recent years, the UAE, the Arab world’s second-largest economy, has undertaken several economic, legal and social reforms to strengthen its business environment, increase foreign direct investment, attract skilled workers with new visas and provide incentives to companies to set up or expand their operations.
In 2019, amendments were introduced to the 10-year golden residency initiative to simplify the eligibility criteria and expand the categories of beneficiaries.
The UAE also introduced a one-year digital nomad visa in March 2021 that allows people to live in the Emirates while continuing to work for employers in their home countries.
“The boom in so-called digital nomads is only just starting — promising disruption to outbound countries, destination markets, tax systems, residential rental demand and office requirements,” Knight Frank said.