Geographical diversification fuels the wealth of the Asian region

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It might seem logical that the war in Ukraine, inflation, rising interest rates and market turmoil make the outlook for storing wealth a bit uncertain.

Not so, say experts at management consultancy BCG, in the firm’s annual Global Wealth Report. Far from looking into the abyss, they are looking up and seeing the global stock of financial wealth grow steadily over the next five years.

In their base-case scenario, global financial assets are projected to grow by 5.3% per year through 2026. This assumes that Russia stops its invasion of Ukraine this year and that geopolitical tensions ease, even if the sanctions against Moscow would remain in place until 2025.

Remarkably, a longer conflict in Ukraine has only a modest impact. Even if the fighting lasts until 2023 and sanctions increase, the effects on wealth accumulation will likely be limited as long as there is no military escalation. Under these circumstances, the BCG expects financial wealth to grow by 5.0%. So almost the same.

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To be fair, the forecast implies a substantial slowdown in wealth accumulation compared to the recent past. Growth in financial assets over the decade to 2021 was 7.2% per year. Nevertheless, given the role played by the rise of financial markets in the increase in assets, one would expect that at a time when conditions are likely to be more turbulent, the accumulation of wealth will increase. collapses.

BCG highlights the remarkable resilience of wealth accumulation during the global financial crisis of 2008 and the pandemic shock of 2020. “While not immune to market volatility, global wealth portfolios have bounced back from recent shocks,” the authors write.

On top of that, inflation can increase the wealth of savvy investors by pushing up the stocks of inflation-resistant companies — and encouraging them to shift money from rapidly depreciating cash into securities.

Private funding of digital wealth management companies reached new heights in 2021. Chart showing private funding invested in wealth management fintechs (in billions of dollars).  Funding increased from $3.2 billion in 2020 to $14.5 billion in 2021

However, at the heart of the BCG forecast is the growing geographic diversification of global wealth from the Atlantic to the Asia-Pacific region. Even with its economy in the doldrums, China continues to hoard money as its neighbors do. These are countries very far from the Donbass.

The Asia-Pacific region is not immune to the impact of rising energy and food prices, but the effects are mitigated by distance and its own economic dynamism. The same is true, although to a lesser extent, for Africa and Latin America. Oil producers everywhere see a windfall, especially the Gulf States.

One consequence for the wealthy — and their advisers — is the seemingly relentless rise of Hong Kong and Singapore as global centers for wealth management. The BCG predicts that, by 2026, Hong Kong will overtake Switzerland as the world’s largest hub for cross-border assets, a shift of historic proportions.

And, say the authors, this will happen despite a moderate exodus of money from Hong Kong to Singapore (and elsewhere) due to political pressure from Beijing – although there will always be larger inflows from the mainland to Hong Kong. .

Switzerland holds the most wealth abroad.  Chart illustrating the wealth of cross-border financial centers 2021 (in billions of dollars) and the dependence on cross-border wealth (%).  Switzerland held $2.5 billion in wealth from cross-border financial centers in 2021

Does this mean the disappearance of traditional centers of wealth management? Not necessarily. BCG says tech wizards in Zurich, London and New York have every chance to take advantage of the digital revolution and transform the sometimes clunky tech services offered in wealth management into something genuinely appealing . This all sounds very promising, especially if you’re a tech-focused wealth management company with a decent client list.

But history suggests that BCG’s opinions should be read with some caution. Wars have a habit of spiraling out of control; inflation is not always as transitory as the authorities claim; and a market upheaval can cause lasting economic damage, as in the case of the global financial crisis. It may be a bad time for rose-tinted glasses in the wealth industry.

Stefan Wagstyl is the editor of FT Wealth and FT Money. Follow him on Twitter @stefanwagstyl

This article is part of FT Wealtha section offering in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investing

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