China's rebound from Covid-19 slump driving Asia-Pac wealth growth

Mon, Oct 26, 2020

Natalie Choy

https://www.businesstimes.com.sg/ban...-wealth-growth

CHINA is bouncing back to drive gains in household wealth out of Asia-Pacific - the only region in the world to record a gain in the first six months of the annus horribilis that is 2020.

As a new Credit Suisse report this month showed, China's outperformance has steadied total global wealth, helping it to edge up 0.3 per cent - or about US$1 trillion - to US$400 trillion since the start of this year to end-June.

China and North America were well poised to grow at a healthy rate, but the Covid-19 pandemic has wiped out the prospective gain in North America. It also caused losses in every other region in the January-June period, except China and India.

Wealth out of China grew 4.4 per cent to US$81.4 billion, while that from India rose 1.6 per cent to US$15.6 billion. Consequently, total wealth out of Asia-Pacific, including China and India, stood at US$167 billion at end-June, up about 2.0 per cent from a year ago.

With the outperformance from this region, the fortunes of Asia-Pacific - the single-largest contributor to global wealth - made up 42 per cent of the global total household wealth of US$400 billion by the end of June this year.

As at end-2019, there were 45,920 adults in Asia Pacific whose net worth exceeded US$50 million.

A few factors put China in a clear winning position. First, it recovered quickly from the Covid-19 crisis. While GDP in China fell 34 per cent in the first quarter, it rebounded by 55 per cent in the second quarter, said Credit Suisse. The country is also predicted to grow slightly over the year as a whole.

Also, the wealth of the Chinese billionaires at the end of June was even higher than in February, despite Covid-19, reflecting the importance of the automotive and technology industries there, and other parts of the region such as Japan and Korea.

The tech boom is particularly noticeable across geographies as well.

Some industries, especially those in tech and other "new economy" sectors, have seen increased business and a strong rise in stock prices amid the crisis. Wealth has risen fast for a handful of top billionaires who lead the major companies in this sector.

Amazon's Jeff Bezos saw his wealth rise from US$113 billion to US$165 billion from March to June this year. Facebook's Mark Zuckerberg's wealth went up from US$55 billion to US$84 billion.

These increases far outstrip the average rise of 21 per cent among the world's top 1,000 billionaires, according to the report. A rise in the relative wealth of countries that specialise more in those activities, particularly China, is also expected.

In contrast, billionaires whose wealth is tied to "old economy" sectors that have suffered most from lockdowns, such as retail business and personal services, have fared less well.

"These experiences will be echoed, more modestly, by ordinary investors who put their money into the new economy and by the owners of businesses linked to the growth sectors," said the report.

An earlier UBS report showed that even in this region, the fortunes of Asia's wealthiest have grown more polarising, with billionaires in the booming tech and healthcare sectors pulling ahead of their peers as the Covid-19 crisis accelerates the divergence.

Billionaires in the Asia-Pacific identified as disruptors and innovators grew their wealth by 23 per cent to US$1.4 trillion from 2018 through to July 31 this year. This is compared with a smaller 13 per cent increase to US$1.2 trillion among traditional billionaires over the same period, data from UBS and PwC's annual billionaire report showed.

To be sure, global household wealth has also been relatively unscathed, as it grew off the strong growth in 2019, when total global wealth rose 10 per cent to US$399.2 trillion. Wealth per adult was up 8.5 per cent to US$77,309, cracking an all-time high, data from the report showed.

But even then, this comes off the boom in wealth from China, where average wealth growth surged ahead over a decade. In the years just after the Global Financial Crisis (GFC), it recorded a 74 per cent rise by 2010, pushing ahead of the rest of the world.

Without the pandemic, Credit Suisse's estimate of global wealth per adult would have risen from US$77,309 to US$78,376.

Households overall are now in a better position to spur recovery, as compared with the situation during the GFC, Credit Suisse said.

When the commitment of governments and central banks "became apparent", equity prices began to rise, said Anthony Shorrocks, economist and co-author of the report.

Lower interest rates and relaxed credit conditions have supported asset prices, including house prices and the valuations of pension entitlements. There has also been massive economic support involving the transfer of trillions of US dollars from the government sector to the private sector, and ultimately to households.

To add, restricted consumption opportunities have translated into higher savings and consequently into higher financial assets or lower debts.

Prof Shorrocks said at a media briefing: "Governments learnt from the experience in 2008 and responded promptly. Everything that should have been done in 2008 has been done now in the pandemic, and that helped to stabilise household wealth."

But there remain shocks ahead to the global economy, as governments unwind relief. "The pandemic will have important repercussions on income distribution," the report added.

"Although emergency benefits in high-income countries offset the effect to some extent, unemployment and reduced economic activity will almost certainly increase income inequality within countries since they tend to affect those with lower incomes disproportionately."