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The Richest Of The Rich Get Richer

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The world’s richest 1% had a banner year in 2013, propelled by robust equities performance in developed economies and healthy GDP growth in emerging markets. Global private wealth jumped 14.6%, reaching a total of $152 trillion, and disproportionately enriched the wealthiest investors, according to a report released June 9 by the Boston Consulting Group titled Global Wealth 2014: Riding a Wave of Growth.

This surge in affluence led to a 20% increase in the number of millionaires worldwide, reaching 16.3 million in 2013 from 13.7 million in 2012. The starkest gains took place in China, where the number of millionaire households increased by 60% to 2.4 million. The emerging superpower still comes in a distant second to the United States, however, which is home to 7.1 million millionaires. Overall, Asian economies (excluding Japan) saw the largest gains in wealth, equal to about $8.7 trillion. North America, meanwhile, followed close behind with increases of $6.8 trillion.

Millionaire households also claimed a larger proportion of global wealth in 2013, gobbling up about 42% of the economic pie compared to about 39% in 2012. To put that in perspective, this group now controls more than $60 trillion, or nearly four times the annual GDP of the United States. And don’t expect that to change any time soon: BCG anticipates millionaires’ wealth to increase by 7.7% annually during the next 5 years, far faster than the 3.7% rate expected for everyone else.

However, this is only one part of a broader economic story, said Brent Beardsley, a partner at Boston Consulting Group. “It’s important to remember that going forward much of that concentration of wealth is going to be offset by the growth of a middle class in emerging markets,” he said.

Emerging economies accumulated wealth at an unsurpassed rate in 2013, growing at an even faster pace than developed countries. The Asian economies (excluding Japan) produced the sharpest gains, clocking a breakneck growth rate of 30.5%. While the pace of wealth accumulation in 2013 was unusually fast, these economies will continue to prosper in the future, averaging 10.5% annual growth for the next five years. By 2018, Asia will surpass North America and become the wealthiest continent in the world, predicts the Boston Consulting Group.

In sharp contrast, Western Europe remained a relative laggard in wealth production. The region’s wealth only increased by 5.2% in 2013, even in spite of a strong recovery in European equities, in which the Euro Stoxx 50 gained 14.7%. This is partly an inevitable side effect of these countries’ conservative investing culture, said Daniel Kessler, a partner at Boston Consulting Group. Europeans invest more heavily than Americans in cash, fixed income and other purportedly safe investments.

North Americans, meanwhile, were happy to take 2013’s bull market for a wild ride. The continent’s wealth grew at a 15.6% annual pace, quite impressive for developing countries, which typically produce slower gains. While this is certainly a healthy sign for America’s wheezing economy, don’t expect a repeat performance any time soon. Most of the gains came from a sweeping rebound of U.S. equities: the S&P 500 rose nearly 30% in 2013, and the Dow Jones Industrial Average gained more than 25%. Meanwhile, GDP growth in 2013 – which is vital to sustaining wealth creation in the long run – only clocked in a tepid 1.9%.

In the future, developed markets will settle into a more subdued pattern of wealth creation. Both America and Western Europe will gain at an annual rate of 3.3% during the next 5 years. Japan – which also performed unusually well in 2013, gaining 4.8% – will putter along at an even more anemic annual rate of 1.2%. A more exciting story will unfold in the developed world, where Latin America, the Middle East and Africa, and Eastern Europe will see annual increases of 8.8%, 6.5% and 10.7% respectively. Asia, however, will still remain the star of the show.

“No offense to any of my colleges, but Asia is by far the most exciting place,” said Federico Burgoni, Asia-Pacific leader of Boston Consulting Group’s asset and wealth management segment.

Check out the full report here:

https://www.bcgperspectives.com/content/articles/financial_institutions_business_unit_strategy_global_wealth_2014_riding_wave_growth/