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World wealth to grow despite turmoil

The world’s stock of wealth is set to keep growing, despite the effects of rising inflation, financial market turmoil and the Ukraine crisis, according to an influential study that says “wealth growth has proven extraordinarily resilient to extreme events”.

The total value of financial and real assets, including property, rose to $530tn at the end of 2021, according to research by BCG, the corporate adviser. In its forecasts for the five years to 2026, it said financial wealth alone is likely to increase at about 5 per cent a year, adding $75tn-$80.6tn to that total.

The prediction takes account of the impact of the recent sharp drops in financial markets, which the authors expect to bounce back. It would come in addition to a 10.6 per cent rise seen last year, the largest increase in a decade, as markets extended their recovery from the March 2020 pandemic shock.

BCG’s base case assumes that Russia halts its invasion in 2022 and its gas and oil exports resume, though other sanctions remain in place until 2025. Economic growth suffers in the short term but recovers from next year onwards. In this event, global wealth is forecast to rise by 5.3 per cent a year to the end of 2026.

But BCG argues that even if the war goes on well into 2023 and sanctions get tougher, then the outlook for wealth accumulation still remains positive, assuming there is no military escalation or Nato involvement. World wealth then grows at 5 per cent a year, resulting in $5tn less in the wealth stockpile by the end of 2026 than under the 5.3 per cent outlook.

“To our surprise,” write the BCG analysts, “the difference is smaller than was expected . . . In both scenarios, the overall trajectory remains positive”.

One reason for the optimism is that with inflation worrying investors, institutions and individuals might shift more cash into equities to counter the effects of rising prices. Property prices could increase on similar grounds.

Also, a big share of the world’s wealth is concentrated in centres away from the crisis, notably in North America and in the fast-growing Asia-Pacific region.

Switzerland holds the most overseas wealth. Chart showing Cross-border financial centre wealth 2021 ($tn) and Dependency on cross-border wealth (%). Switzerland held $2.5tn in cross-border financial centre wealth in 2021

“While not immune to market volatility, global wealth portfolios have rebounded from recent shocks including the Great Recession and the pandemic,” says the report.

As a result, BCG expects the rise of Hong Kong and Singapore as global wealth management centres to continue unabated. It forecasts that by 2026, Hong Kong will overtake Switzerland as the world’s biggest centre for cross-border assets, in a historic shift.

The authors allow for a moderate exodus of money from Hong Kong to Singapore (and elsewhere) because of Beijing’s political squeeze on the former British colony. But they anticipate continuing large inflows from the mainland into Hong Kong.

The UAE is forecast to climb to fifth place as a cross-border wealth management centre, pushing the Channel Islands and the Isle of Man into sixth place. The UK mainland will remain seventh.

Private funding of digital wealth management firms reached new highs in 2021. Chart showing private funding invested into wealth management fintechs ($bn). Funding increased from $3.2bn in 2020 to $14.5bn in 2021

However, BCG argues that Old World wealth managers in Zurich, London and New York still have plenty of opportunities, notably in capitalising on digital technology and applying it to transforming client services.

But Anna Zakrzewski, BCG’s global leader for wealth management, warns established wealth companies to move quickly because clients “are in no mood to wait for next-generation offers and next-generation service. They want them now . . . if not from their current wealth advisers, then from others.”

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