_Uncertainty rules – the latest trends in wealth creation

Post-truth was Oxford Dictionaries’ 2016 international word of the year. While the phrase itself has been around for a decade or so it is only in the past 12 months that it has become part of our everyday discourse, prompted by a series of seismic political events and, in particular, by the unexpected outcomes of the UK’s referendum on leaving the EU and the US presidential election.

The consensus seems to be that we are now living in a post-truth world, where appeals to belief or emotion are more important than facts in shaping public opinion. The result? Ever greater uncertainty over the future path of fiscal, economic and political policy.

Yet, despite this uncertainty, wealth creation gathered some momentum during 2016, resulting in a modest rise in the global population of ultra-wealthy people and reversing last year’s decline.

The number of individuals with US$30 million or more in net assets, defined as UHNWIs, rose by 6,340, boosting the total ultra-wealthy population to 193,490, according to data prepared for The Wealth Report by New World Wealth. Some 60 people saw their wealth move past the US$1 billion mark, taking the total number of billionaires to 2,024, an increase of 45% in the past decade.

Political uncertainty

The increase was far from being a foregone conclusion, especially given that nearly three-quarters of respondents to our Attitudes Survey highlighted political uncertainty as a significant threat to their clients’ ability to create and preserve wealth.

But wealth growth has been bolstered by several financial factors, as Andrew Amoils, Head of Research at New World Wealth, explains. “One key influence on income in 2016 has been the performance of stock markets in dollar terms. In many countries this was much stronger in 2016 than 2015.”

While the overall number of UHNWIs has grown, considerable variation remains between growth rates in different regions and countries, reflecting the local factors that underpin wealth creation and the mobility of ultra-wealthy people.

This “multi-speed” trend is set to continue over the next decade, with the number of UHNWIs predicted to climb by an average of 12% in Europe, compared with a forecast 91% growth in Asia over the same period. Overall, the number of ultrawealthy people worldwide is expected to grow by 42%.

"There may be widespread uncertainty on a global, regional and national level, but there are also strong fundamentals in many economies, with signs of real progress being made around regulation and policy which will help economic growth to flourish in some places," Mr Amoils explained.

The dramatic growth of UHNWIs in Asia is set to be reinforced by stellar growth rates in several countries, including Vietnam, which is expected to see its ultra-wealthy population rise by 170% to 540 over the next decade – the highest rate of growth in the world. Millionaire numbers are expected to jump from 14,300 to 38,600 over the same period.

The World Bank has described the transformation of the Vietnamese economy over the last 25 years as “remarkable”, with economic and political reforms translating into higher incomes. Although the bank warns that the country is vulnerable to economic and environmental shocks, the outlook for the economy remains strong, with average GDP growth of around 6% forecast annually until 2020.

“We expect Vietnam millionaire numbers to be boosted by strong growth in the local healthcare, manufacturing and financial services sectors,” says Mr Amoils.

Substantial growth is also forecast in Sri Lanka and India. As Andrew Kenningham, Chief Global Economist at Capital Economics, highlights overleaf, regulatory reform in India will help bolster its already positive economic performance.

In China, despite indications that economic growth is slowing, the sheer scale of the economy, coupled with strong growth in the local high-tech, media, entertainment and healthcare sectors, will deliver 140% growth in ultrawealthy populations, New World Wealth forecasts.

East vs west

At a regional level, North America may not be topping the charts with its forecast 31% rate of growth over the next 10 years, but it will still be the key hub for UHNWIs in 2026, with a population of 95,860. However, Asia will be starting to challenge for this title. At present, Asia has 27,020 fewer UHNWIs than North America; by 2026, this difference will have shrunk to just 7,680.

Nevertheless, the US is expected to see higher growth (+30%) in its ultra-wealthy population over the next decade than many other developed economies; a sign that, despite an inevitable period of uncertainty as the new president sets out his stall, the country’s economic fundamentals are still aligned with wealth creation.

However, Canada is expected to see a 50% increase in its ultra-wealthy population, albeit from a much lower base, reflecting its growing status as a “safe haven” from political upheaval.

Australasia is expected to see a 70% rise in UHNWIs between now and 2026, thanks not only to its healthy economy but also the attractive lifestyle it offers.

“In addition, there has been some recovery from the commodity price crash of 2015, along with resilient stock market performances and robust real estate returns. In the future, this region will have the attraction of good economic fundamentals and ‘safe haven’ status.”

However, even this level of growth will only take the total of UHNWIs living in the Australasian region to 7,180. Despite the modest growth in ultra-wealthy populations expected in Europe, Australasia’s total ultra-wealthy population will still be smaller than that of several European countries in 2026, including Germany (8,750) and Switzerland (8,570).

In Europe, the UK will remain the front-runner in terms of UHNWI numbers in 2026, with a forecast population of 12,310, up 30% from today, despite high levels of economic and political uncertainty as the country negotiates its exit from the EU. By contrast, New World Wealth forecasts little growth in the ultra-wealthy populations of Germany, France, Italy and Spain.

“Here, growth will be constrained by growing religious tensions, a combination of rising taxes and higher state pension obligations and public healthcare costs, and the loss of high-skilled jobs to Asia,” says Mr Amoils. “We also expect to see some outward migration of HNWIs from these countries.”

The number of ultra-wealthy people in Russia and the CIS is forecast to rise by 60% over the next decade, with Azerbaijan and Kazakhstan matching the growth rate expected in the Russian Federation. This will take the total number of UHNWIs in the region to 5,170.

^{This development in Ras Al Akhdar, Abu Dhabi, UAE, is home to almost 400 UHNWIs}

Africa rising

The growth in ultra-wealthy populations in Africa (33%) and Latin America (37%) will also outpace that in Europe and North America. In Africa, sharp rises are expected in countries such as Mauritius, Ethiopia, Tanzania, Uganda, Kenya and Rwanda. In fact, of the 20 countries whose ultra-wealthy populations have grown most rapidly over the last decade, 11 are in Africa.

In pole position sits Mauritius which, with its reputation as a relatively safe, business-friendly country with lower tax rates than many countries in Africa, is expected to remain a popular retirement hotspot for the wealthy. “The country will also be bolstered by its strengthening local financial services, with a forecast 130% rise in its UHNWI population over the next decade,” Mr Amoils says.

While the total UHNWI population in these African countries is starting from a relatively low base, wealth is expected to increase all the way up the chain, with 7,500 new millionaires set to be created over the next decade in Kenya alone.

New World Wealth does not forecast any growth in the ultra-wealthy population in Nigeria over the coming decade. This follows on from a 20% decline last year alone due to economic and political tensions in the country.

However, Geoffrey Yu, who heads up the UK Investment Office at UBS, gives an alternative perspective, outlining the opportunities for wealth creation that could come to fruition if stability of governance is achieved.

In Latin America, Mexico is predicted to see its ultrawealthy population increase by 40%, although the country will undoubtedly be reassessing its relationship with its neighbour to the north as the new US president settles into his role.

Argentina is expecting to see a 30% rise in those with $30 million or more in net assets between now and 2026; but Brazil, which currently has the second-biggest ultra-wealthy population in the region, will see its growth rate more than halve from 47% between 2006 and 2016 to 20% over the coming decade, amid ongoing political upheaval and outward HNWI migration.

The ultra-wealthy population remained static overall in the Middle East in 2016 and, while it is forecast to grow by 39% over the next decade, this still marks a slowdown compared with the 48% growth seen over the last 10 years.

Saudi Arabia felt the impact of lower oil prices during 2016, resulting in a 10% decline in numbers, while the extreme political upheaval in Turkey during the year and the devaluation of the lira caused the country’s UHNWI population to shrink by a fifth.

Europe, Africa and Latin America also saw their ultra-wealthy populations decline in 2016. In Europe, some 1,470 people saw their wealth slip below the $30 million threshold, equivalent to a 3% annual fall, although the strength of the dollar may have had an impact as all of New World Wealth’s data is calculated in dollar terms. Africa and Latin America both saw 2% declines in their UHNWI populations in 2016.

Yet a handful of countries – including Canada, Malta, the United Arab Emirates, Qatar, Monaco and Israel, as well as Australia and New Zealand – enjoyed significant growth in their ultra-wealthy populations during 2016.

What these countries share is the ability to attract migrating HNWIs and to offer a fiscal and political “safe haven” as well as excellent quality of life – which, as we have already seen with reference to Australasia in particular, will be a recurring theme over the next decade. This trend has bolstered Monaco’s status as the country with the highest levels of UHNWIs per head of population.

To put this into context, the US has a total population of 321 million and a UHNWI population of 73,100, the world’s largest, giving a ratio of two UHNWIs per 10,000 people. The comparable ratio for Monaco is 320.

Another strong performer, Malta, which saw a 12% increase in its ultra-wealthy population in 2016, is benefiting from its investor visa and residency programme and strong growth in the local IT, financial services and real estate sectors.

Looking ahead, Mr Amoils says the mobility of UHNWIs looks set to increase still further – and to extend its reach beyond the current hotspots.

“We may see more mobility among those who are already UHNWIs in the coming years as they search for locations that offer a secure environment, economically, politically and personally.

"Yet around the world, burgeoning economic growth in some countries is providing many opportunities for wealth creation, and in some cases creating new wealth hubs away from traditional locations.”