Global wealth on the up but so is inequality

Findings from the latest Global Wealth Report by Credit Suisse have brought fresh perspective to the heated debate on changing distribution of wealth, fuelled earlier this year by French economist Thomas Piketty’s book on rising income inequality, Capital in the Twenty-first Century.

The report analyses trends in global wealth from the very base of the “wealth pyramid”, including individuals with net worth of less than $10,000 (€7,800) to the ultra high net worth individuals with more than $50m. Despite the challenging economic environment, in the 12 months to mid-2014 global household wealth rose by 8.3 per cent to reach a new record $263tn, mainly driven by developed markets, according to the study.

Emerging markets, although unable to maintain their growth momentum pre-crisis, today represent 19 per cent of global wealth, up from 11 per cent in 2000. This figure is expected to rise to 21 per cent by 2019, the same level reached at their peak in 2009.

However, although it varies significantly across countries, wealth inequality has risen in recent years in contrast to the pre-crisis period, mainly due to the rapid growth of financial assets, fuelled by quantitative easing.

Wealth among the richest is primarily based on financial assets, while non financial/real assets play a much greater role for lower wealth segments. And financial assets grew three times as fast as non-financial assets since 2008, while the opposite trend had been observed since 2000, with real assets, mainly real estate, increasing much quicker.

The price of the ticket for joining the “exclusive club” of the top 1 per cent wealthy people in the world has risen to around $800,000 over the past couple of years, explains Michael O’Sullivan, CIO, UK and Eemea, at Credit Suisse Private Banking & Wealth Management. The wealth needed to be in the top 10 per cent is quite stable at $77,000.

In the US, Switzerland and some emerging markets, such as Russia and India, the top 10 per cent owns more than 70 per cent of wealth. However, while the wealth to disposable income ratio in the US has been rising in recent years, it is back to the 2000 level.

Many European countries such as France, Italy, the UK or Spain display average levels of inequality, with the top 10 per cent of wealthy individuals owning just more than half of the country’s wealth. In Germany, Mexico, or China (home to around half of the world’s wealthy middle class) the top decile has more than 60 per cent of domestic wealth.

 “Whilst it is tempting to say the world is just living in a situation with growing wealth inequality, for most of European countries that’s not the case,” says Mr O’Sullivan. “You could argue that, if we are at peak QE in the US, then maybe wealth inequality itself is beginning to peak.”