“I’m on my way, I’m making it
I’ve got to make it show,
So much larger than life,
I’m going to watch it growing”
– Peter Gabriel, ‘Big Time’
To quote All the President’s Men (1976), “follow the money.”
Investors, like investigators, often find wins when they follow the flow of capital.
In 2019, we had the highest level of wealth per adult in modern history.
As we navigate the world amongst an on-going pandemic, where has all that money been moving to, and how do we follow?
Today, let’s consider two metrics by which to track global wealth movement:
- The pattern of growth in total wealth around the world, and;
- Total wealth and numbers of billionaires across various regions.
The global movements of capital
Total global wealth is projected to rise by 27% by 2024, up to USD 459 trillion.
This growth will not be equal across different regions, in fact we can stipulate that the emerging trends of wealth flows we see today will only accelerate in the next few years.
Let’s look at levels of total wealth in three different regions from 2000 to 2024*
United States in 2000 was ~USD 62 trillion; in 2024 this is expected to grow to USD 120 trillion (an increase of 93.5%)
China in 2000 was ~USD 6 trillion; in 2024 this is expected to grow to USD 78 trillion (an increase of 1,200%)
India in 2000 was ~USD 3 trillion; in 2024 this is expected to grow to USD 16 trillion (an increase of 433%)
*forecast figures from Credit Suisse ‘Global wealth report’
Although the United States has (and will likely have for some time) the largest percentage of total wealth globally, the growth rates in China and India place them as serious contenders for that throne in the coming decade.
The face-value reasons for why this is the case is that China and India have larger populations, but it’s important to consider that for decades both of these countries had (and still do) huge numbers of people living below the poverty line and not contributing as much wealth per adult as the United States.
We only need to look at the enormous growth of the middle class in China to see that the wealth per adult in Asia is accelerating at rates more established economies cannot possibly keep up with.
America may currently be leading the race, but Asia’s driving a faster car (sorry NASCAR fans).
Source: Credit Suisse
On a side note, India has rising wealth but dramatic income equality which skews our view of personal wealth across households.
India is a beneficiary of the migration of wealth from Europe and the US over to Asia – but part of what makes China, in comparison to India, such a success story in this regard is the rise in wealth of almost all of its citizens, which benefits massively to total wealth as an aggregate.
The chart below shows the total wealth by country in 2019 – a chart that is guaranteed to change by the end of this year – but is nonetheless interesting to see the dispersion between Asia, Europe and North America.
Follow the 1%
The number of billionaires is growing worldwide, the “1%” is getting bigger – in flagrant disregard of how statistics are supposed to work.
If COVID-19 has made years of change happen in just a few months, the creation of new billionaires is no exception – there are now 2,189 billionaires worldwide, with a collective wealth of USD 10.2 trillion (more than the combined wealth of our entire country for those keeping score).
In a recent report by Credit Suisse, approximately 45% of the world’s wealth is estimated to be held by the wealthiest 1% – and that means we can use that 1% as a great indicator to track movements of capital throughout the globe.
But first, let’s quickly discuss the ‘Gini Coefficient’. The Gini Coefficient is the measure of distribution of income across a population (for this note we’ll consider that to be the entire world), essentially measuring the level of income equality via wealth distribution. A coefficient of 100% means perfect inequality, and a coefficient of 0% means perfect equality.
For purposes of our “1% indicator”, the Gini being close to 100% gives us some comfort that the 1% are a good guide to where money is moving. As you can see above, the Gini Coefficient has been trending down slightly over the last twenty years as the rise of middle classes in emerging markets has taken up more wealth as a whole – but the top 1% still hold strong in their share of global wealth and that gives us comfort in tracking capital flow through them.
Particularly, consider the growth of the 1%.
Source: UBS “Billionaires Report 2020”
Once again, we can see the growth of China is unrivalled by the rest of the world.
The United States holds the most wealth for billionaires by a long margin, but the growth of Mainland China and Hong Kong billionaires is enormous – in April 2020, there were 389 Chinese billionaires, and we’ll watch that number spike once Ant Financial IPOs.
Tracking billionaires also allows us to examine global wealth movements by individual sectors more accurately than examining whole regions.
By sector, the movement of wealth has driven strongly towards tech and healthcare.
During 2018-2020, tech billionaires grew their total wealth by 42.5% and healthcare billionaires increased theirs by 50.3%.
Compare this to the overall billionaire class, which rose by a modest 19.1% – although we’re not pulling out the violins for the poor real estate magnates yet, it does indicate that a vast proportion of global funds has shifted towards certain concentrated sectors, driven particularly by COVID and its acceleration of consumer habits most likely.
An interesting point to consider is that these growth levels quite closely reflect the mixed levels of recovery in equity markets – tech and healthcare are pulling the rest of the market up by its bootstraps, and due to the large holdings in listed companies our billionaire indicator confirms that global capital has picked two particular horses to back in the short term.
Down the rabbit hole
Tracking capital flows is just one tool in the arsenal of the investor, and like any indicator it shouldn’t be used by itself. What the growth of particular regions and billionaire classes shows us is where the herd is going, where liquidity will be and where the ‘big money’ have put their chips.
In a sense, we can use the movement of global wealth as our ‘canary in the mine’ – don’t spend your entire time watching the bird, lest you trip into potholes along your way.
But if your canary panics and starts to fly away, it may be wise to pay attention.
The views expressed in this article are the views of the stated author as at the date published and are subject to change based on markets and other conditions. Past performance is not a reliable indicator of future performance. Mason Stevens is only providing general advice in providing this information. You should consider this information, along with all your other investments and strategies when assessing the appropriateness of the information to your individual circumstances. Mason Stevens and its associates and their respective directors and other staff each declare that they may hold interests in securities and/or earn fees or other benefits from transactions arising as a result of information contained in this article.