A steady increase in global personal wealth growth came to a sharp halt last year but the Middle East bucked this trend by rising 5.7 per cent, according to a new Global Wealth Report from international consulting firm BCG.
Globally, personal financial assets grew by only 1.6 per cent in 2018, well below the five-year compound annual rate of 6.2 per cent from 2013 to 2017. The 19th annual report includes close to 100 markets and draws on data from more than 150 wealth managers.
"The fourth-quarter dip in major stock indexes pulled down equities and the large regional portfolios tied to them. High valuation levels, geopolitical risks and the challenges of returning to normal interest rate levels also contributed to the decline," said the study titled Global Wealth 2019: Reigniting Radical Growth.
Global economic activity slowed in the second half of last year, and global growth is projected to slow further from 3.6 per cent in 2018 to 3.2 per cent this year — the lowest growth rate in a decade, according to the International Monetary Fund’s latest World Economic Outlook.
The “slowing global economy” suggests wealth worldwide is likely to grow at a compound annual rate of 5.7 per cent from 2018 to 2023, the report estimated based on projected rates of inflation, foreign currency movements and market performance. Investable and non-investable assets stand at nearly $206 trillion (Dh756tn) and are expected to reach $272tn in 2023.
North America and Western Europe were the regions that suffered the most last year, due to a high concentration of equity-rich portfolios among high net-worth individuals. Wealth in North America grew only 0.4 per cent and Western Europe 0.6 per cent. Compound annual growth rates are also expected to decline, from 5.6 per cent the past five years to 5.4 per cent the next five years in North America, and from 4.4 per cent to 3.9 per cent in Western Europe.
In the Middle East, assets grew at a compound annual rate of 5.4 per cent from 2013 to 2017, and are expected to grow 6.9 per cent annually to $5.2tn in 2023. Personal wealth in the region is currently estimated at $3.7tn. The report cited positive returns from the local stock markets and solid deposit expansion in Turkey as drivers of overall wealth growth.
Personal wealth in the UAE, in particular, is expected to grow by 8 per cent per year to $600 billion. Figures shared by BCG from a separate country internal report said that 47 per cent of the UAE’s total personal wealth in 2018 is held by millionaires, similar to the 50 per cent rate globally.
Currency and deposits accounted for the largest proportion of personal assets in the UAE at 66 per cent, followed by life insurance and pensions at 17 per cent, equities and investment funds at 14 per cent and bonds at 3 per cent. By 2023, life insurance and pensions are expected to grow at the fastest rate of 18 per cent per year, while currency and deposits will grow at an annual rate of 5 per cent.
The cross-border share of total wealth in the UAE was 31.8 per cent in 2018, in line with the Mena region average, but significantly higher than the global share of 4.2 per cent. The share is expected to decrease to 28.8 per cent by 2023, as cross-border assets show a lower growth rate than onshore assets at 6 per cent per year.
Despite personal wealth in the UAE and the region growing at a healthy rate, Markus Massi, managing director and senior partner at BCG Middle East, said wealth managers should not rest on their laurels.
“While international wealth managers are making strides towards innovating in a rapidly shifting environment, Middle East wealth managers have not fully embarked on that trend,” said Mr Massi. “Local wealth managers have to tailor their offering more to either local needs and/or younger wealth segments. Offering a ‘me too’ will not be sufficient to benefit from the growing wealth."