The international distribution of household November 2010

A report prepared for Deloitte

Contents

Executive Summary...... 1

1 Introduction ...... 2

2 Overview of methodology and data sources ...... 3

3 Cross-country trends in wealth...... 6

4 Individual Country Analysis...... 10 4.1 ...... 10 4.2 Brazil ...... 10 4.3 ...... 11 4.4 ...... 12 4.5 ...... 13 4.6 ...... 13 4.7 ...... 14 4.8 ...... 15 4.9 ...... 15 4.10 ...... 16 4.11 ...... 17 4.12 Mexico...... 17 4.13 ...... 18 4.14 Norway ...... 19 4.15 Poland ...... 20 4.16 Russia ...... 20 4.17 ...... 21 4.18 ...... 22 4.19 ...... 22 4.20 ...... 23 4.21 ...... 24 4.22 ...... 24 4.23 ...... 25 4.24 ...... 26 4.25 ...... 26

5 Wealthy households across US states ...... 28

6 Conclusion...... 31

7 Appendix: Methodology...... 32 7.26 Estimating the current number of wealthy households ...... 32 7.27 Forecasting wealth cohorts ...... 33

The international distribution of household wealth October 2010

Executive Summary

An understanding of future socio-economic trends and how they will affect movements in the various wealth cohorts is vitally important for wealth managers when developing their business models. With this in mind, this study presents the results of a benchmarking exercise, examining the population of wealthy households in a sample of 25 economies chosen for their size, growth potential and strategic importance. We report estimates of the current number of households with net wealth above certain thresholds ($1m, $5m and $30m), as well as forecasts of how these wealth cohorts will change over the next decade.

Our approach to forecasting future changes in the population of wealthy housholds involves two steps. First, a breakdown of wealth holdings across broad asset categories is established for each cohort of interest. Second, the value of these portfolios is projected forward using forecasts for relevant factors such as stock prices, house prices and interest rates, which are contained within the Oxford Economics Global Model. This modelling approach allows for wealth shares to vary across time, reflecting different rates of return on asset portfolios. The future can therefore shift, rather than imposing aggregate wealth projections onto a static distribution. Using the Global Model also enables alternative forecasts of wealthy individuals to be made under varying assumptions for key economic and financial variables.

Our results indicate that the US and will remain the global centres of wealth over the next decade, being home to the largest population of wealthy households. On the other hand, the Emerging Market economies will prove more dynamic in terms of growth rates, creating significant opportunities for wealth managers seeking to gain a share of these potentially lucrative markets.

Also presented are the results of a more in-depth analysis of the world’s richest economy, the United States, focussing on the number of wealthy households at the state level. Our forecasts show that will continue to be home to the most millionaires in the US in 2020, whilst will continue to have the highest concentration of wealth. In terms of the projected increase in numbers of millionaire households, California easily tops the rankings, with an additional 1.5m households expected to have net wealth in excess of $1m by 2020. Second in the rankings is , where the number of millionaire households is forecast to rise by around 1m. But it is the east cost of the US where wealth creation is forecast to be most heavily concentrated over the next decade, with (+900k) and (+800k) standing out among a cluster of rapidly growing states.

1 The international distribution of household wealth October 2010

1 Introduction

The key determinants of medium-to-long term growth in the industry are the socio-economic developments that drive wealth creation and capital appreciation. An understanding of these future trends and how they will affect movements in the various wealth cohorts is vitally important for wealth managers when considering strategies for developing their business plans. Equally, a global perspective is crucial, given that one of the most significant opportunities for wealth managers in coming years is likely to be the acceleration of wealth creation among the Emerging Market economies.

This study presents the results of a market benchmarking exercise, examining the population of wealthy households in a sample of 25 economies chosen for their size, growth potential and strategic importance. Estimates of the current number of households above specific wealth thresholds are provided for each country, as well as forecasts of how these wealth cohorts will change over the next ten years. Also presented are the results of a more in-depth analysis of the world’s richest economy, the United States, focussing on the number of wealthy households at the state level.

It is hoped that this analysis will provide some interesting and valuable insights into the evolution of national markets and the future geographic distribution of wealth creation. The paper is organised as follows:

 Section 2 provides an overview of our results, highlighting the broad trends driving wealth creation across countries.

 Section 3 examines the individual country results in more detail.

 Section 4 presents state-level estimates and forecasts for the US.

 Section 5 concludes.

A description of our methodology and data sources is provided in the Appendix.

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2 Overview of methodology and data sources

In this study we report cross-country estimates and forecasts of the number (and density) of households with net wealth above certain thresholds: $1m, $5m and $30m. Official exchange rates are used on the grounds that this metric is more directly relevant to wealth managers seeking to compare market size and investment opportunities across countries. The numbers presented in this study relate to overall wealth, including the primary residence. Although it is customary for the wealthy to be grouped into categories according to levels of investable assets (i.e. excluding the home), on a cross-country basis the available data rarely makes such distinctions possible. Rather than rely on secondary evidence such as the opinions of investment professionals, the analysis presented in this report relies solely on primary data sources, thereby maximising the reliability of our estimates. As well as official data, such as those produced by national statistical offices, we have used evidence from national surveys of the super- rich, such as the annual ‘Rich Lists’ compiled by Forbes, to help produce a more complete picture of the upper-tail of the wealth distribution in each country.

Having estimated the current population of wealthy individuals by country, our approach to forecasting future changes in their numbers involves two steps. First, a breakdown of wealth holdings across broad asset categories is established for each cohort of interest (see Box 1 for a discussion). Second, the value of these portfolios is projected forward using forecasts for relevant factors such as stock prices, house prices and interest rates, which are contained within the Oxford Economics Global Model. This modelling approach allows for shifts in the overall distribution of wealth across time, rather than imposing aggregate wealth projections onto a static distribution. Using the Global Model also enables alternative forecasts of wealthy individuals to be made under varying assumptions for key economic and financial variables. A more detailed description of our estimation and forecasting methodology is available in the Appendix of this report.

Of course, concepts of what makes an individual ‘wealthy’ vary between countries and through time. This is because perceptions of relative wealth are framed by economic factors, such as the cost of living, which varies due to differences in relative price levels. Comparing the US and China, for example, it is clear that the standard of living associated with a given level of wealth would be very different between the two countries. Correcting for these differences in relative price levels using purchasing power parity (PPP) exchange rates shows that $1m in the US, for example, feels more like $1.8m in China. Equally, the real value of assets is eroded over time due to the effects of , so an American with $1m of assets in 1990 would have seen their real value fall to just $600k today. This helps to explain why being a ‘millionaire’ in the US is no longer viewed as the milestone of success that it was in the past. These caveats should be borne in mind when reviewing our results.

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Box 1: Cross-country evidence on the composition of wealth

The household balance sheet includes holdings of financial assets (such as stocks, bonds and cash), non-financial assets (such as property, land and consumer durables) and liabilities (mortgage and non-mortgage debt). At the aggregate level there is fairly good coverage of household portfolios, particularly for Europe and , although information for developing countries is less readily available. Chart A1 presents data on household asset holdings for a selection of countries. The composition of household wealth in the industrialised world differs from that in less developed economies, with land and residential assets being relatively more important in the latter. This pattern is largely a reflection of underdeveloped financial markets in these Emerging economies. Although the share of non- financial assets does not look very high in China, there is no private ownership of urban land there.

Chart A1: Household Wealth Portfolios in Selected Countries

Household Wealth Portfolios Net worth (US$) 100% Other

90% Business equity 80% Bonds 70% Stocks 60% 50% Cash

40% Financial Assets 30% Other non- 20% financial Other real 10% estate

0% Primary Canada Spain Italy Sweden US China India residence (Urban) (Urban)

Source: National survey data

The more detailed breakdown of financial assets that is generally available for developed countries allows for a more in depth analysis of cross country trends. In the US, for example, equities make up a large proportion of financial wealth holdings, accounting for 70% on average, whilst they constitute just 6% of financial wealth in Italy 1. Cash deposits generally account for around 10% of financial assets, except in Japan, where very low rates of inflation and poor performance in the stock market have resulted in cash comprising over 60% of financial assets 2. In Australia, the Netherlands

1 Cannari et al. (2008), “Italian household wealth: Background, main results, outlook”, Banca Italia. 2 Iwaisako, T. (2003), “Household portfolios in Japan”, NBER working paper 9647.

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and the UK, other financial assets represent a significant share of financial wealth, reflecting the importance of pension contributions.

A detailed analysis of the distribution of wealth would benefit from evidence on how portfolio compositions vary across wealth cohorts. Unfortunately, reliable survey data with this level of granularity is only available for a limited number of (mainly industrialised) countries. Chart A2 illustrates how portfolios vary across the wealth distribution in the US. For those in the bottom half of the distribution, the household’s primary residence is the largest part of household assets. Progressing up the wealth distribution, property becomes less important, with financial assets (in particular, stocks and business equity) taking the largest share of portfolios.

Chart A2: Allocation of assets across cohorts in the US

Asset allocation within US wealth cohorts share in portfolio 100% Business equity Stocks 80%

Bonds 60% Cash

40% Other Non- Financial

20% Other real estate Primary 0% residence 0-50 50-95 90-95 95-99 99 - 100 percentile percentile percentile percentile percentile

Source: FRB Survey of Consumer Finances (2007)

Using the cross-country data that is available, we have imputed the portfolio distribution for all countries missing data in our sample. As described in the Appendix, this was a necessary step in our forecasting methodology, because it allows us to take account of how different wealth cohorts’ portfolios will grow over time, driven by the differing rates of return on the assets held. Our estimates do not distinguish between the primary residence and other property holdings, given that this breakdown was not generally available from national sources.

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3 Cross-country trends in wealth

The recent global financial crisis and recession proved to be watershed events for both investors and wealth managers. What started as a downturn in the US housing market quickly spread to undermine the strength of the global banking sector, thus spilling over into the broader financial markets. Over the course of 2008, the value of household wealth holdings across the industrialised economies suffered declines that were unprecedented in living memory. Although stock markets have since rebounded, they remain below their pre- crisis peaks, and house prices have continued to slide in the US and several European economies.

As described in Box 2, the impact of the downturn has been felt most acutely among the industrialised nations and particularly the US, which was at the epicentre of the turmoil. Our estimates suggest that the number of households with assets in excess of $1m stood at 9.8m in 2010, representing a decline of 2.8m since 2007. Relative to 2000, the number of millionaire households in the US has increased by just 27%. By contrast, wealth creation among the Emerging Market economies sufferred only a temporary setback in 2008 followed by a strong rebound in 2009. In China, for example, we estimate that the number of households with wealth in excess of $1m has witnessed a threefold increase over the period 2000-10.

It is not surprising to find that our cross-country estimates for 2010 generally show the industrialised nations to be home to the largest number of households with net wealth in excess of the $1m threshold. As shown in Table 2.1, China is the only Emerging Market economy currently ranked among our top 10 for millionaire households. In terms of density of millionaire households, however, China ranks near the bottom of our sample (see Table 2.3). The financial centres of Hong Kong, Singapore and Switzerland are home to the largest density of millionaire households, with wealth holdings being very concentrated in these small nations.

Box 2: Wealth creation over the past decade

The past ten years have seen a dramatic shift in the geographic distribution of wealth creation, away from the industrialised nations and toward Emerging Market economies. This divergence is well illustrated by considering historic trends in the number of wealthy households in the United States and China.

Chart A3 below shows how the number of US households with wealth above the $1m threshold has grown since 2000. At the start of the decade, the population within this wealth band drifted lower, reflecting share price declines resulting from the bursting of the technology bubble and an economy that was flirting with recession. By the middle of the decade, there had been a dramatic turnaround in the country’s economic fortunes, however, as output recovered strongly, share prices rebounded, and the housing market boomed. Americans appeared to be benefitting from a surge

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in wealth that swelled the ranks of those classed as dollar millionaires by over 4m households (a rise of almost 70%) over the period 2003-06. But these gains would prove to be largely transitory. House prices had already begun to fall in the second half of 2007 and the downturn accelerated in 2008, bringing with it financial turmoil and pushing the economy into a deep recession by the end of the year. The number of US millionaire households fell by around 3.5m in 2008 as a result of the massive destruction of wealth that arose from the housing market crash and financial crisis. Although financial and economic conditions had improved by the end of 2009, the number of $1m households stood at just 9.3m, representing an increase of only 21% over the level in 2000.

Chart A3: Households in the US with net wealth above $1m

US: Households with wealth above $1m millions % Number (LHS) Annual growth (RHS) 14 25

12 15

10 5 8 -5 6 -15 4

2 -25

0 -35 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source : Oxford Economics estimates

The experience of the United States contrasts sharply with developments in China. As illustrated by Chart A4, we estimate that the number of Chinese households with net wealth above the $1m threshold amounted to just over 300,000 in 2000, but growth proved very strong in the first half of the decade, averaging close to 20%pa over the period 2001-04. By 2007, the combination of rapid economic expansion, a surging stock market and a property boom in the major urban centres had helped to propel the number of dollar millionaires in the country to 1.2 million. Although the financial crisis and global recession contributed to a decline in the number of households in this wealth bracket during 2008, the 18% contraction proved relatively moderate by international standards. Moreover, the strong rebound in economic and financial conditions during 2009 fuelled a 15% surge in the number of $1m households in that year alone, bringing the total to 1.1m. Over the period 2000-09, the number of dollar millionaires in China had thus witnessed a threefold increase.

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Chart A4: Households in China with net wealth above $1m China: Households with wealth above $1m 000s %

1,400 Number (LHS) 70

Annual growth (RHS) 60 1,200 50 1,000 40

30 800 20 600 10 400 0

-10 200 -20

0 -30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source : Oxford Economics estimates

With economic growth in the Emerging Market economies expected to outpace the industrialised nations over the next decade, it is these economies where wealth will grow most strongly. In particular, East Asia will continue to be the driving force in wealth creation, aided by Brazil and Russia. Singapore and Hong Kong have already surpassed the average wealth levels achieved in Europe and North America and, although these areas will remain centres of wealth, by 2020 China will be joined by South Korea in the top ten in absolute terms.

Table 2. 1: Number o f Millionaire Table 2. 2: Number of Million aire Households in 2010 (000s) Households in 2020 (000s)

US 9,315 US 20,538 Japan 5,428 Japan 8,649 Germany 5,789 Germany 3,371 UK 2,882 UK 3,814 France 2,560 Italy 3,552 Italy 2,432 France 3,346 Canada 1,703 China 2,500 China 1,234 Canada 2,413 Australia 725 South Korea 1,730 Australia 1,690 Netherlands 680 Source: Oxford Economics Sour ce: Oxford Economics

The narrowing of the gap between the developed world and the emerging markets is evident in our estimates of household millionaire density presented in Tables 2.3 and 2.4. Hong Kong and Singapore will continue to have the highest

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densities, with 37% and 47% of households expected to be USD millionaires by 2020. However, there is expected to be significant movement in the middle of the ranking. Australia and Taiwan will rise up the rankings, with 16% of households in the latter expected to be millionaires by 2020. In contrast to this, France, Italy and Spain will slip down as depressed housing markets and low economic growth holds back wealth accumulation. This will be a particular problem for Spain, where the density of millionaire households will rise by just 2.6 percentage points to 7.1% in the next ten years.

Table 2.3 : Density of households w ith at least Table 2.4 : Density of households with at least US$1 million net worth in 2010 (per cent) US$1 million net worth in 2020 (per cent)

Hong Kong 29.60 Hong Kong 47.30 Singapore 19.65 Singapore 37.17 Switzerland 15.81 Switzerland 24.00 Canada 12.52 Japan 17.88 UK 11.20 Australia 17.70 Japan 10.93 Canada 16.65 France 10.27 US 16.23 Italy 9.85 Taiwan 15.70 Netherlands 9.37 Italy 15.20 Taiwan 8.60 Germany 14.52 Germany 8.41 UK 14.07 Australia 8.38 Norway 13.49 US 7.95 France 12.86 Norway 7.42 Netherlands 12.71 Spain 6.11 South Korea 9.96 Sweden 5.32 Sweden 9.17 South Korea 2.85 Spain 9.15 Turkey 1.30 Malaysia 3.21 Malaysia 0.77 Turkey 2.95 Russia 0.54 Russia 2.55 Brazil 0.53 Brazil 1.86 Mexico 0.50 Mexico 1.83 Poland 0.35 Poland 0.93 China 0.21 China 0.38

India 0.11 India 0.28

Source: Oxford Economics Source: Oxford Economics

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4 Individual Country Analysis

This section discusses the individual country results in more detail, highlighting the characteristics of each market and the key drivers of change in the number of wealthy individuals.

4.1 Australia

The decade before the crisis brought uninterrupted economic growth to Australia. House prices in particular rose rapidly, growing by 9%pa on average over the decade. As a result, the number of millionaire households increased rapidly, from 149,000 in 2000 to 689,000 in 2009. The economy managed to avoid a recession during 2009 as a result of a strong, stable banking system, no crash in the housing market and its natural resource endowments, which are in high demand in the growing economies of East Asia (particularly China). But the wealth holdings of Australia’s richest did not escape the downturn unscathed, particularly as the stock market suffered sharp declines. The annual survey of the richest 200 Australians conducted by Business Review Weekly showed that their combined net worth had fallen by around US$22bn over the past year to US$122 billion in 2009. Still, an individual required at least US$165 million just to make the list. Our estimates indicate that there are around 11,000 Australians with at least US$30m of assets in 2010, while those with at least $1m of assets amount to around 725,000.

Although the housing market is expected to cool over the next two years, with prices expected to fall by 5% in 2011, the economy’s strong fundaments will ensure that growth is robust over the next decade; asset values and house prices are expected to continue rising and interest rates to remain high to combat inflation. Against this background, we expect the number of USD millionaire households to double to 1.6 million by 2020, while those with at least $30m of asset holdings will increase to around 24,000. The total wealth holdings of those with net worth of at least $1m is projected to grow from US$1.7 trillion to US$3.6 trillion.

Table 3.1 : Number of Australian h ouseholds with wealth in specified brackets (000s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 125 614 646 616 1,004 1,450 Net worth of $5m-$30m 24 59 68 71 105 146 Net worth above $30m 1 9 11 12 17 24 Total wealth holdings of millionaires (US$ Bn) 490 1,429 1,499 1,492 2,361 3,640

Source: Oxford Economics

4.2 Brazil

Brazil is expected to be a driver of economic growth in the developing world over the next decade. Its abundance of natural resources has met with strong

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demand in India and China, and coupled with the development of manufacturing the economy is now the tenth largest in the world. Strong growth in the stock market in recent years has also been a factor supporting the growth of household wealth. Our analysis indicates that there are currently 268,000 households with net wealth in excess of US$1m, up from 105,000 in 2000, while 11,000 had wealth holdings above the $30m threshold. The total amount of wealth held by millionaires in Brazil is estimated at US$511 billion.

The robust levels of growth expected in the next decade are reflected in our forecast for the two key drivers of wealth, the stock market and house prices. Over the previous decade double-digit annual increases in both were the norm, and given the economy’s underlying fundamentals this performance is expected to continue. We expect the number of USD millionaire households to increase to 1 million by 2020, while the number of households with wealth in excess of $30m will grow to 67,000. The total wealth holdings of millionaires in Brazil is projected to reach US$2.0 trillion by 2020.

Table 3.2 : Number of Brazillian h ouseholds with wealth in specified brackets (000s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 68 150 174 195 313 798 Net worth of $5m-$30m 37 75 83 91 127 135 Net worth above $30m <1 7 11 17 36 67 Total wealth holdings of millionaires (US$ Bn) 274 481 511 571 947 2,037

Source: Oxford Economics

4.3 Canada

Households in Canada have accumulated wealth rapidly over the last decade, with rising house prices and a buoyant stock market driving the number of millionaire households up from 383,000 in 2000 to 1.7 million in 2009. Over the financial crisis the economy performed relatively well, helped by a strong and stable banking system. With the domestic stock market and house prices having suffered only moderate declines, household wealth levels proved more resilient than in the US during the downturn. Our research suggests that there are currently around 1.7 million households with net wealth in excess of US$1m, while around 17,000 have net worth of at least US$30m. The combined wealth holdings of Canadian millionaires amounts to US$3.2 trillion.

Looking forward, we expect the economy to continue growing strongly as demand from Asia keeps natural resource prices high and the recovery in the US stimulates manufacturing exports. As a result, we are forecasting robust GDP growth rates of around 4.5% per annum for the rest of the decade, which will support strong growth in both the stock market and house prices. Reflecting these trends, we forecast the number of households with net wealth in excess of $1m to rise over the coming decade to 2.4 million, while those with wealth above the $30m threshold will number around 27,000. Total wealth holdings of Canadian millionaires is forecast to reach US$6.8 trillion in 2020.

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Table 3.3 : Number of Canadian h ouseholds with wealth in specified brackets (000s) and total wealth holdings of millionaire households 2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 254 1,470 1,506 1,546 1,817 2,152

Net worth of $5m-$30m 121 177 180 182 204 234 Net worth above $30m 9 17 17 17 25 27 Total wealth holdings

of millionaires (US$ Bn) 746 3,161 3,248 3,354 4,640 6,771

Source: Oxford Economics

4.4 China

The Chinese economy has transformed itself in recent years through structural reforms and its entry to the WTO in 2001, and is now the world’s largest exporter and the second largest oil consumer. With GDP of US$4.9 trillion in 2009, this places China third in the world behind the US and Japan. But with its population of 1.3bn, China is still a low-income country. Income disparities have grown as urbanisation has boosted prospects in the cities. Nevertheless, average salaries in and are still well below rates in Korea and Hong Kong.

The rapid growth of the economy has given rise to a new generation of wealthy Chinese, with the number of millionaire households estimated to have risen from 310,000 in 2000 to 1.1 million in 2009. The Hurun Wealth Report, which represents the most authoritative survey of China’s wealthy, estimated that there were 825,000 individuals with wealth of at least $1.46m in 2009. Wealth holdings of at least US$150m were required to be counted among China’s 1000 richest. Our estimates indicate that there are currently 1.2 million Chinese households with net wealth of at least US$1m, with 40,000 holding wealth of at least US$30m. The combined net worth of all Chinese millionaires now amount to US$1.3 trillion. Looking forward, China’s long term economic prospects look bright and wealth levels are expected to increase substantially. By 2020, we forecast the number of households with wealth of at least US$1m to have increased to 2.5m, of which 327,000 will have wealth of US$30m or more. The total wealth held by China’s millionaires is projected to reach US$8 trillion by 2020.

Table 3.4 : Number of Chinese h ouseholds with wealth in specified brackets (000s) and total wealth holdings of millionaire households 2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 310 679 770 802 1,093 1,484 Net worth of $5m-$30m <1 379 424 464 601 689 Net worth above $30m <1 38 40 46 124 327 Total wealth holdings of millionaires (US$ Bn) 403 1,138 1,332 1,669 3,600 8,239 Source: Oxford Economics

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4.5 France

The last decade has seen mixed fortunes for the wealthy in France. House prices have risen spectacularly, more than doubling over the period 2001-2007, but offsetting this is the stock market, which rose just 4% over the same period. As a result of the financial crisis, the economy stagnated in 2008 and contracted by 2.6% in 2009. The economic and financial crisis resulted in stock prices falling sharply between the end of 2007 and the first quarter of 2009, and although there has been some recovery since then, we do not expect the stock market to return to its pre-crisis high until 2020. House prices also suffered declines of around 7% in 2009. These factors have significantly reduced household net worth in the last 2 years, with the Les Challenges top 500 rich list reporting that only EUR39 million (US$54m) was needed to make the ranking in 2009. Despite this mixed performance (and helped by the euro’s appreciation against the dollar), we estimate that the number of millionaire households has risen by 45% in the period 2000-2009, from 500,000 to 2.5m. The ongoing recovery in stocks and house prices has resulted in a slight rise in the number of millionaire households this year, to 2.6 million, with 22,000 above the US$30m threshold. The total wealth holdings of French millionaires amounted to US$4.4 trillion.

Moving into the next decade, fiscal austerity measures, coupled with ongoing problems within the banking system, are expected to put the brakes on the recovery in 2011 and 2012. In the medium term, structural problems within the labour market will keep unemployment above 7% for the next decade and limit the economy’s growth potential. Our forecast for GDP growth over the next decade is solid but not spectacular by European standards, and this is reflected in the expected performance of the stock market and house prices. Still, given the economy’s strong starting position, France will remain a powerhouse in terms of household wealth, as reflected in the number of millionaire households predicted for 2020 at 3.3 million with a combined wealth of US$8.4 trillion.

Table 3.5 : Number of French h ouseholds with wealth in specified brackets (000s) and total wealth holdings of millionaire households 2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 484 2,386 2,445 2,533 2,709 3,109

Net worth of $5m-$30m 65 93 93 96 143 185 Net worth above $30m 7 21 22 24 35 52 Total wealth holdings

of millionaires (US$ Bn) 787 4,014 4,209 4,623 5,777 8,306 Source: Oxford Economics

4.6 Germany

As the powerhouse of Europe, the historical number of millionaire households in Germany is large, with 1.1 million and 3.1 million estimated for 2000 and 2009 respectively. However in density terms Germany’s performance is average at

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best, with a ranking of 10 th in 2010. This is surprising when Manager Magazine’s rich list is compared with the French equivalent Les Challenges . The 100 th richest German was worth €1 billion in 2009, compared to €300 million in France. The comparatively low number of German millionaires is explained by stagnant house prices; the average annual growth rate over the last decade was just 0.18%, while in the UK it was 8.1%. On the other hand, German is home to a relatively large number of households with wealth in excess of US$30m, estimated at 33,000 in 2010.

Looking forward, our analysis suggests that German households’ very high savings rates (which imply substantial asset accumulation) will lay the foundations for more rapid growth in household wealth. House prices are expected to pick up and, supported by the domestic economy, the stock market is predicted to outpace its European rivals. Our results show that Germany will overtake all countries except the US and Japan in terms of millionaire households, which will number 5.8 million in 2020. The number of households with net wealth above $30m will also increase significantly over the next decade to reach 71,000. Our forecasts imply that the combined wealth of German millionaires will climb from US$4 trillion in 2010 to US$11 trillion in 2020.

Table 3.6 : Number of German h ouseholds with wealth in specified brackets (000s) and total wealth holdings of millionaire households 2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 1,017 2,986 3,226 3,333 4,223 5,540

Net worth of $5m-$30m 37 113 113 114 134 178 Net worth above $30m 11 29 33 38 56 71 Total wealth holdings

of millionaires (US$ Bn) 1,080 4,401 4,645 5,142 7,360 10,941

Source: Oxford Economics

4.7 Hong Kong

By our calculations millionaire households have expanded rapidly in Hong Kong, from 266,000 in 2000 to this year’s estimate of 676,000, the highest density in our sample. The country was also home to 34 in 2009 according to Forbes. Although Singapore will challenge this position over the next ten years, we expect Hong Kong to hold onto the top spot in terms of density of millionaires. Its position as a trading hub for East Asia and a gateway to China mean the country is very well-placed to grow rapidly and increase its wealth over the next decade. In particular, the trade and financial services sectors that have grown up around the port will result in rapid economic growth, and this is reflected in our forecasts for the stock market and house prices over the next decade. We estimate that over 1 million households will be US$ millionaires by 2020, an impressive 47% of the total. The total amount of wealth held by millionaires in Hong Kong is projected to growth from US$2.1 trillion in 2010 to US$5.7 trillion in 2020.

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Table 3.7 : Number of households in Hong Kong with wealth in specified brackets (000s) and total wealth holdings of millionaire households 2000 2009 2010 2011 2015 2020

Net worth of $1m-$5m 246 520 555 581 725 869 Net worth of $5m-$30m 14 102 111 120 173 296 Net worth above $30m 7 10 10 10 11 13 Total wealth holdings of millionaires (US$ Bn) 720 2,108 2,314 2,480 3,532 5,701

Source: Oxford Economics

4.8 India

Prior to 2003 economic growth in India was sporadic, but recent government reforms to improve infrastructure (particularly in energy production), reduce subsidies and open the economy up to global trade have resulted in GDP growth consistently exceeding 7% since 2003. However, the economy’s comparatively late start and poor performance relative to other developing economies has resulted in the number of USD millionaires growing by just 18% over the previous decade, to an estimated 183,000 in 2010. This is the lowest among the BRIC economies, despite India’s population being the largest. Their combined wealth holdings are also the lowest among the BRICs at US$503bn.

The government’s reforms are expected to continue in the next decade, and coupled with this private investment rates have increased significantly over the last five years. Put together, these shifts have raised the economy’s potential growth rate, and as a result the stock market in particular is expected to gain value rapidly over the next decade. Our forecast for the stock market is reflected in the rapid increase in the number of USD millionaire households, which are expected to number 694,000 by 2020 with combined wealth holdings of US$3 trillion. Whilst this is an impressive absolute figure, the density of millionaires in 2020 (0.28%) still shows India to be lagging significantly behind the other countries in our sample.

Table 3.8 : Number of Indian households with wealth in specified brackets (000s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 133 157 183 210 315 508 Net worth of $5m-$30m negligible 36 43 50 84 130

Net worth above $30m negligible 17 21 26 40 56 Total wealth holdings of millionaires (US$ Bn) 71 362 503 584 1,559 2,950

Source: Oxford Economics

4.9 Italy

Despite the financial crisis contributing to deep falls in the national stock market, Italy is estimated to have had 2.4 million households with net worth of at least US$1 million in 2010, 700,000 more than in 2000. Among our sample, only the US, Japan, Germany and the UK are currently home to more households with net wealth above the US$1m threshold. However, the lack of dynamism within

15 The international distribution of household wealth October 2010

the economy will hamper the growth of household wealth over the next decade. Particular problems are the relatively high levels of taxation and structural problems within the labour market, both of which have contributed to falling competitiveness. Looking forward, the labour market issues in particular will limit the potential for output growth over the next ten years, as will the ageing population which will result in a shrinking workforce over time.

The predicted sluggish performance of the economy is reflected in our forecast for the stock market and house prices, but offsetting this is the falling population which will concentrate the existing wealth holdings. We estimate that the number of households with net wealth of at least US$1m will rise by around 1 million over the next decade, to 3.6 million in 2020. The total wealth holdings of these households will rise consistently too, from US$5.5 trillion in 2010 to US$9.5trillion in 2020. Growth in households with wealth above $30m will prove more dynamic, increasing more than three-fold to 50,000.

Table 3.9 : Number of Italian households with wealth in specified brackets (000s) and total wealth holdings of millionaire households 2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 1,065 2,115 2,071 2,103 2,449 3,016 Net worth of $5m-$30m 108 347 345 355 410 486 Net worth above $30m 4 16 16 18 30 50

Total wealth holdings

of millionaires (US$ Bn) 1,997 5,626 5,544 5,714 6,987 9,479

Source: Oxford Economics

4.10 Japan

As the second richest economy in the world, Japan started the decade with an impressive 4.9 million millionaire households in 2000. The economy posted relatively robust growth rates in 2002-07, with GDP increasing by 2-2.5% per annum. However, this rebound suffered a significant setback amid the financial crisis and global recession in 2009, with domestic GDP contracting by 1.2% in 2008 and a further 5.3% in 2009. The collapse in the domestic economy coupled with the continuing hangover from the asset price crash in the early 1990s has resulted in household wealth levels falling in domestic terms over the last 10 years, but the Yen’s appreciation against the dollar over this time means the number of millionaire households has stayed the same.

Looking forward, Japan’s potential growth will be significantly limited by its rapidly aging population. Despite this, the competitiveness of high tech exports are expected to drive the stock market and wealth creation. This will result in the number of millionaires increasing relatively quickly, to 8.6 million by 2020. Our forecast also shows household numbers with wealth in excess of $30m will increase to 96,000 by 2020, representing a spectacular seven-fold rise. Total wealth holdings of millionaire households is also projected to balloon from US$9.4 trillion in 2010 to US$19 trillion in 2020

16 The international distribution of household wealth October 2010

Table 3.10 : Number of Japanese households with wealth in specified brackets (000s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 4,666 4,694 5,146 5,403 6,428 7,841 Net worth of $5m-$30m 231 239 266 282 462 712 Net worth above $30m 13 10 16 20 53 96 Total wealth holdings of millionaires (US$ Bn) 7,970 8,155 9,405 9,999 13,455 19,018

Source: Oxford Economics

4.11 Malaysia

As a developing economy with strong fundamentals, the Malaysian economy is expected to grow rapidly in the next decade. A large endowment of natural resources, in particular natural gas, will continue to generate substantial revenues, and the country’s position as the most popular tourist destination in Southeast Asia will also propel the economy forward. High levels of foreign direct investment and the continued development of high tech manufacturing, will also support the rise in activity levels. The forecasted strong performance of the economy is reflected in both house prices and the stock market. The number of millionaires is estimated to have almost doubled over the previous decade, and is predicted to increase five-fold over the next ten years, from 52,000 in 2010 to 249,000 in 2020. Households with wealth of at least US$30m will increase from 4,000 to 8,000 over the same period. These forecasts imply that the total amount of wealth held by millionaire households in Malaysia will growth from US$108bn in 2009 to US$693bn in 2020.

Table 3.11 : Number of Malaysian households with wealth in specified brackets (000s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 9 16 30 53 143 212 Net worth of $5m-$30m 8 13 18 19 24 29 Net worth above $30m <1 4 4 4 6 8

Total wealth holdings

of millionaires (US$ Bn) 24 97 108 136 305 693

Source: Oxford Economics

4.12 Mexico

Mexico’s economy is heavily reliant on its rich northern neighbour. The signing of NAFTA in 1994 opened up opportunities for trade with the rest of the continent, and as a result the US is the destination for around 80% of Mexico’s exports. Despite this lucrative market, the Mexican economy is still poor and has a highly unequal distribution of wealth. We estimate that the number of millionaire households rose by 79,000 over the previous decade to just 154,000 in 2010, with a combined wealth of US$297bn.

17 The international distribution of household wealth October 2010

As a developing country, Mexico’s growth outlook is relatively positive for the next decade. Recovery in the US economy will stimulate demand for exports, and the continuing institutional reforms of the economy will increase the potential growth rate of GDP. However, the lack of competition in key industries such as oil production is currently holding the country back, and as a result we are forecasting a relatively slow growth rate of the stock market compared to other developing economies. Still, the number of USD millionaire households is expected to expand rapidly to 615,000 in 2020, with their combined wealth reaching just over US$1.1 trillion. Households with wealth in excess of $30m will number around 16,000 by 2020.

Table 3.1 2: Number of Mexican households with wealth in specified brackets (000s) and total wealth holdings of millionaire households 2000 2009 2010 2011 2015 2020

Net worth of $1m-$5m 63 110 116 124 228 507 Net worth of $5m-$30m <1 32 37 43 68 92 Net worth above $30m <1 <1 1 3 6 16 Total wealth holdings of millionaires (US$ Bn) 113 204 297 362 706 1,122

Source: Oxford Economics

4.13 Netherlands

Strong house price growth in the Netherlands over the previous decade resulted in the number of millionaire households expanding rapidly from a base of 230,000 in 2000. But as a small open economy, the Netherlands was particularly vulnerable to the 2009 recession. Output shrank by 3.9% in 2009, and as with other European nations, equity prices fell sharply. Although the housing market has performed relatively well, the loss of financial wealth has pulled down our estimate of households with wealth in excess of $1m in 2009 to 639,000, although this number has recovered to 680,000 in 2010. Households with wealth in excess of US$30m currently number around 14,000 according to our estimates.

Despite the continuing problems in the European banking sector, the long term outlook for the economy is more positive. As a trading hub for Europe, the Netherlands will increasingly benefit from the globalisation of the world economy and, coupled with this, its natural gas reserves are vast and highly profitable. As a result, growth is expected to be robust relative to other European nations, and the number of millionaires is forecast to increase to 1 million by 2020. Households with wealth of US$30m or more will rise to 28,000 over the same period. Our forecasts imply that the combined wealth holdings of Dutch millionaire households will grow fromUS$1.6 trillion in 2010 to reach US$3.1 trillion in 2020.

18 The international distribution of household wealth October 2010

TableTable 3.13 3.13: :Number Number of of households households in in the the Netherlands Netherlands with with wealth wea lth in in specified specified brackets brackets (000s) (000s) andand total total wealth wealth holdings holdings of of millionaire millionaire households households 20002000 2009 2009 2010 2010 2011 2011 2015 2015 2020 2020

NetNet worth worth of of $1m-$5m $1m-$5m 226 205 602 810 632 787 657 787 736 877 8211,076 NetNet worth worth of of $5m-$30m $5m-$30m 18 12 22 19 34 47 40 60 81 108 110 138 NetNet worth worth above above $30m $30m 6 13 14 15 14 18 16 19 19 22 28 30 TotalTotal wealth wealth holdings holdings of of millionaires millionaires (US$ (US$ Bn) Bn) 364 314 1,340 1,738 1,598 1,914 1,747 2,065 2,387 3,057 3,1 4,24566

Source:Source: Oxford Oxford Economics Economics

4.14 Norway

As an open, resource-rich economy, Norway is highly dependent on global demand. Oil and natural gas are the most valuable endowments, but hydropower, fish, forestry and minerals are also significant; as a result Norway is a wealthy economy with a relatively high standard of living. Despite Norway’s GDP per capita ranking among the highest in the world, household wealth is not significantly greater than in other European economies. High tax rates and the government’s control of a significant amount of the wealth generated by the country’s oil endowment in the Government Pension Fund has limited the current population’s ability to accumulate assets, but this will result in future generations benefitting from the endowment. We estimate that the number of millionaire households has risen by 114,000 over the previous decade to 164,000 in 2010, with just 3,000 with wealth above $30m. Indeed, just US$54 million was needed to make Kapital Magazine’s top 400 rich list in 2009.

Looking forward, Norway’s growth in wealth will continue to be supported by its natural resource sector, which will drive GDP and as a result the stock market and house prices. However the careful management of this wealth will limit the growth rate, and as a result the number of millionaires will not quite double over the next decade, reaching 319,000 in 2020. Our analysis indicates that the number of households with wealth of US$30m will increase to around 6,000 over the same period. The total wealth holdings of millionaire households in Norway is projected to rise from US$316bn in 2010 to US$836bn by 2020.

Table 3.14 : Number of Norwegian households with wealth in specified brackets (000s) and total wealth holdings of millionaire households 2000 2009 2010 2011 2015 2020

Net worth of $1m-$5m 42 144 147 159 216 277 Net worth of $5m-$30m 7 13 14 15 26 36 Net worth above $30m 1 3 3 4 5 6 Total wealth holdings of millionaires (US$ Bn) 128 269 316 356 561 836

Source: Oxford Economics

19 The international distribution of household wealth October 2010

4.15 Poland

Poland’s economic prospects have improved considerably over the last two decades, culminating in accession to the European Union in 2004. Joining the EU forced Poland to reform the economic institutions within its economy; competition has increased, the labour market has become more flexible and property rights for foreigners are now clearly defined and guaranteed. As a result of these changes and barrier-free access to Europe’s lucrative markets, Poland’s economy has grown rapidly in recent years. We estimate that there are currently 48,000 households with net wealth of at least US$1m (up from just 2,000 in 2000), amounting to total wealth holdings of US$69bn. However, the number with assets in excess of US$30m was still negligible.

Looking forward we expect these high growth rates to be maintained as the country catches up with its wealthier neighbours in Western Europe. This is reflected in our forecasts for the stock market, with equity prices expected to rise rapidly over the next decade. House prices are also expected to increase strongly, helping to increase the number of millionaires more than four-fold to 126,000 in 2020, bringing their combined wealth holdings to US$262bn. Households with wealth in excess of US$30m will number around 8,000 by 2020.

Table 3.15 : Number of Polish households with wealth in specified brackets (000s)

and total wealth holdings of millionaire households 2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 2 37 38 38 44 86

Net worth of $5m-$30m <1 7 10 11 15 32 Net worth above $30m <1 <1 <1 1 2 8 Total wealth holdings

of millionaires (US$ Bn) 17 68 69 78 142 262

Source: Oxford Economics

4.16 Russia

More than any other country in our sample, oil and natural gas reserves have brought vast wealth to Russia. The Russian economy is highly reliant on this resource endowment, with 15% of GDP and 65% of export earnings coming from this sector. This endowment has enriched only a very small part of the population, however, resulting in a highly unequal distribution of wealth; we estimate that in 2000 there were just 67,000 millionaire households, rising to 271,000 out of the current household population of 50 million. On the other hand, households with wealth of at least US$30m numbered a respectable 17,000.

The economy is expected to continue to expand over the next decade, boosted by natural resources and the development of manufacturing and services. As a result, both the stock market and house prices are expected to increase rapidly, with the number of millionaires predicted to rise to 1.2 million by 2020, of which

20 The international distribution of household wealth October 2010

49,000 will have wealth of at least US$30m. We forecast that the total wealth holdings of Russia’s millionaires will increase from US$670bn to US$2.7 trillion.

Table 3.16 : Number of Russian households with wealth in specified bra ckets (000s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 67 160 183 269 663 1,003 Net worth of $5m-$30m <1 69 71 85 138 153

Net worth above $30m <1 15 17 21 37 49 Total wealth holdings of millionaires (US$ Bn) 57 558 670 791 1,509 2,696

Source: Oxford Economics

4.17 Singapore

As a trade and financial hub in the Far East, Singapore has enjoyed the benefits of increasing globalisation since World War II. In recent years, the government has pushed to move away from basic manufacturing (where the country now finds it difficult to compete) towards high tech industries such as pharmaceuticals and financial services. This diversification has helped to drive healthy growth rates in the economy and facilitated the accumulation of wealth by many citizens. Our analysis indicates that the number of USD millionaires was 62,000 in 2000, rising to 220,000 (20% of all households) currently, with 5,000 being worth at least US$30m.

The continuing expansion and integration of the global economy will reap further rewards for the City state, driving the stock market upwards, and as a result the country’s wealth and number of millionaires is expected to expand rapidly from its already high base. We estimate that 449,000 households will have net worth above US$1 million by 2020, with Singapore second only to Hong Kong in terms of density of millionaires. Households with wealth of at least $30m will number 22,000 by 2020. The total wealth holdings of millionaires in Singapore is set to rise from US$769bn in 2009 to US$2.4 trillion in 2020.

Table 3.17 : Number of households in Singapore with wealth in specified brackets (000s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 53 161 175 188 257 366 Net worth of $5m-$30m 9 36 40 43 53 61

Net worth above $30m 2 5 5 5 12 22 Total wealth holdings of millionaires (US$ Bn) 171 757 769 883 1,438 2,423

Source: Oxford Economics

21 The international distribution of household wealth October 2010

4.18 South Korea

The South Korean economy has been expanding rapidly since the 1950s. Exports are a key driver of growth, and the country’s move towards high tech manufactures in the 1990s has sustained and expanded trade in recent years. The strong economy has facilitated the accumulation of wealth – we estimate that the number of households with net worth over US$1m grew by 13%pa on average over the previous decade, to reach 485,000 households this year, with combined wealth holdings of US$1trillion. Around 12,000 households have wealth holdings of at least US$30m.

With economic prospects remaining bright over the next ten years, the number of wealthy households is forecast to increase rapidly. The number of millionaire households is expected to rise to 1.7 million by 2020, pushing their combined wealth holdings to US$2.5 trillion. The number of households with wealth of US$30m will also rise strongly, reaching 41,000 by 2020.

Table 3 .18 : Number of households in South Korea with wealth in specified brackets (000s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 87 369 404 435 868 1,506 Net worth of $5m-$30m 45 64 68 71 147 183 Net worth above $30m <1 9 12 14 28 41

Total wealth holdings

of millionaires (US$ Bn) 239 896 949 988 1,985 2,496

Source: Oxford Economics

4.19 Spain

In the years before the financial crisis the Spanish property market boomed, with prices rising at an average annual rate of 13.5% over the period 2002-07. This fuelled rapid growth in the number of dollar millionaires (helped also by the weakening of the dollar against the euro). However, the financial crisis and subsequent recession have highlighted a number of weaknesses within the Spanish economy. In particular, house prices were being driven up by the availability of cheap credit, and its withdrawal resulted in a dramatic crash in the property market and the wealth of households. Despite this the number of millionaire households is estimated to have risen rapidly over the last decade, from 259,000 in 2000 to around 1.1 million in 2009. Of these households, 12,000 were worth at least US$30m.

Looking forward, the next few years are likely to prove difficult for the Spanish economy. The fiscal austerity packages being introduced by the government will create significant headwinds for the economy in the short term, while Spain’s lack of competitiveness will also hamper growth prospects over the medium term; without institutional reforms Spain can not compete with the likes of Germany and the Netherlands. Moreover, house prices are expected to continue falling until 2012, and to grow very slowly after that.

22 The international distribution of household wealth October 2010

This comparatively poor outlook is reflected in our forecasts of the number of millionaire households. The further decline in house prices will push down the total number of households with net wealth of at least US$1m in the near term, to 1 million this year and next, with all high net worth groupings seeing a decline. Numbers in this wealth cohort should subsequently recover as the housing market picks up, with the total number of households holding assets of at least $1m reaching 1.2 million by 2020 and their combined wealth holdings growing to US$2.9 trillion. A notable feature of our results is that the number of Spanish households with wealth holdings between US$5m-US$30m and greater than US$30m is expected to fall only a little and then rise through the forecast period. These divergent trends in the wealth cohorts reflect the relative importance of housing, particularly the principal residence, in the net wealth of those with assets in the $US1m-US$5m range.

Table 3.19 : Number of Spanish households with wealth in specified brackets (0 00s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 229 1,000 937 911 1,028 1,441 Net worth of $5m-$30m 28 107 100 100 106 141 Net worth above $30m 2 12 10 11 14 20

Total wealth holdings

of millionaires (US$ Bn) 412 2,543 2,196 2,168 2,494 3,424

Source: Oxford Economics

4.20 Sweden

Unlike its neighbour Norway, Sweden does not benefit from a substantial endowment of natural resources. Instead, Sweden’s growth is driven primarily by exports from the high tech manufacturing sector, with the European Union being its largest market. Despite its relatively generous welfare state, Sweden has not historically suffered from falling competitiveness due to rising labour costs, although this may change over the coming decade. Having said this, its expertise in high tech industries will ensure that the economy continues to prosper over the next ten years.

This continuing prosperity has resulted in the number of millionaire households doubling over the previous decade, from 99,000 in 2000 to 199,000 in 2010. Looking forward this growth is expected to continue, with the number of millionaire households predicted to rise to 422,000 in 2020, which will raise their combined wealth holdings from US$668bn to US$1.3 trillion. However, the density of millionaire households is relatively low; by 2020 all Western European economies in our sample apart from Spain will boast a higher percentage. This reflects the high tax rates in the country, as well as the highly unequal distribution of wealth - the Veckans Affarer rich list reported that the richest 100 individuals in Sweden controlled 8.4% of the country’s wealth in 2008.

23 The international distribution of household wealth October 2010

Table 3 .20 : Number of Swedish households with wealth in specified brackets (000s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 83 167 198 209 289 349 Net worth of $5m-$30m 10 20 25 30 39 56 Net worth above $30m 6 12 12 13 14 16 Total wealth holdings

of millionaires (US$ Bn) 181 572 668 713 896 1,382

Source: Oxford Economics

4.21 Switzerland

Switzerland has historically always been an international centre for wealth. The need to import almost all raw materials has resulted in a high cost of living and consequently high wages, but by focusing on industries which require a well educated labour force (such as bio-technology, pharmaceuticals and banking and insurance), exports have thrived. Our research indicates that there were 553,000 households (15% of all households) with net wealth of at least US$1m in 2010, of which 8,000 had wealth of at least US$30m. This places Switzerland close to the top of the millionaire density rankings in our sample. The combined wealth of Swiss millionaires currently amounts to around US$2.3 trillion.

Looking forward, the strong economic fundamentals underlying the economy will lead to steady but not spectacular growth. Coupled with the already high levels of household wealth, this will generate 872,000 US$ millionaire households by 2020 (24% of all households) with a combined wealth of US$4.3 trillion. Those with wealth above US$30m will number 22,000 by 2020 according to our forecasts.

Table 3 .21 : Number of Swiss households with wealth in specified brackets (000s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 208 437 452 468 543 657 Net worth of $5m-$30m 26 88 92 96 138 194 Net worth above $30m 1 6 8 9 14 22

Total wealth holdings

of millionaires (US$ Bn) 749 2,094 2,269 2,411 2,973 4,325

Source: Oxford Economics

4.22 Taiwan

Taiwan’s economy has grown rapidly since the 1950s, with exports in manufacturing driving the economy forward. Over time, the composition of exports has changed, from low-skilled to high tech goods, as Taiwan’s international competitiveness has evolved. The key market for Taiwanese goods is China, with the outlook on the mainland being a key determinant of how well the economy performs. China’s rapid growth over the last decade has driven wealth accumulation in Taiwan, with the number of millionaire households

24 The international distribution of household wealth October 2010

rising from 277,000 in 2000 to 638,000 in 2009. The resilience of the Chinese economy through the financial crisis protected Taiwan, and as a result the stock market bounced back rapidly during 2009, pushing up our estimate of the current number of millionaire households to 669,000, with a combined net worth of US$879bn.

During the next decade the continued development of the Chinese economy will be a significant driver of economic growth, and coupled with a relatively high savings rate, household net worth and the number of dollar millionaires is expected to double over the next decade. As a result, we forecast that the number of households with wealth of at least US$1m will exceed 1.2 million in 2020, with combined wealth holdings of US$3 trillion. A new generation of ultra- high net worth households will also emerge, with around 11,000 expected to have net wealth of US$30m by 2020.

Table 3 .2 2: Number of Taiwanese households with wealth in specified brackets (000s) and total wealth holdings of millionaire households 2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 256 609 639 689 922 1,190

Net worth of $5m-$30m 19 27 27 27 30 63 Net worth above $30m 2 3 3 4 5 11 Total wealth holdings

of millionaires (US$ Bn) 397 637 879 987 1,548 2,458

Source: Oxford Economics

4.23 Turkey

Until recently, Turkey’s economy was characterised by sporadic periods of rapid growth in between years of stagnation. As a result the country had just 64,000 millionaire households in 2000, with a negligible number with net worth above $30m. More recently this pattern appears to have changed, with growth in 2002- 2007 averaging 6.8% per annum. A key driver of this improved performance has been the reforms undertaken to move towards EU accession. Monetary policy has become effectively independent of government and fiscal discipline has been enforced, with the resulting macroeconomic stability stimulating investment and growth. But the global recession hit the Turkish economy hard due to the economy’s reliance on the European market. As a result, the stock market fell sharply in 2008, pushing down average wealth levels. Our estimates show there are just 239,000 USD millionaire households in 2010, of which 7,000 had net wealth of at least US$30m.

Looking forward, we expect the benign policy environment to be sustained, and as a result the economy is predicted to expand by over 5% per annum over the next decade. This expansion will feed into the stock market and house prices, supporting growth in the number of millionaire households, which are expected to reach 601,000 in 2020. Households with net wealth of at least US$30m will number 28,000 by 2020 according to our forecasts. The total wealth holdings of

25 The international distribution of household wealth October 2010

Turkey’s millionaires are projected to grow from US$386bn in 2010 to US$1338bn in 2020.

Table 3 .23 : Number of Turkish households with wealth in specified brackets (000s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 52 137 181 211 305 512 Net worth of $5m-$30m 12 49 51 52 57 62 Net worth above $30m negligible 5 7 10 12 28 Total wealth holdings

of millionaires (US$ Bn) 83 327 386 464 666 1,338

Sour ce: Oxford Economics

4.24 United Kingdom

The long uninterrupted period of growth from 1992 to 2007 brought about a large increase in household wealth in the UK. A booming housing market coupled with rising equity prices have resulted in a rapid expansion in the number of millionaires. Although the financial crisis and recession has destroyed a significant amount of household wealth, we estimate that there are around 2.8 million households with net worth above US$1m (up from 1.9m in 2000), equating to a combined net worth of US$5.3 trillion. Among these households, 32,000 were worth at least US$30m.

Moving into the next decade, the UK economy should enjoy solid growth, as its comparative advantage in business services (particularly financial services) drives the economy forward. We expect the US$1m wealth cohort to rise at a steady rate and reach around 3.7 million households by 2020, pushing their combined net worth to US$10.6 trillion. Households with net wealth of US$30m will number 42,000 by 2020.

Table 3.24 : Number of hou seholds in the UK with wealth in specified brackets (000s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 1,909 2,696 2,776 2,798 3,168 3,685 Net worth of $5m-$30m 55 69 73 73 80 87

Net worth above $30m 28 32 32 33 36 42 Total wealth holdings of millionaires (US$ Bn) 2,646 5,315 5,607 5,687 7,479 10,577

Source: Oxford Economics

4.25 United States

The US is the world’s largest economy, accounting for approximately 20% of global GDP. It is also a very wealthy country, ranking high on the table of per capita incomes, although income distribution is heavily skewed toward the upper end of the scale. In part this reflects the importance of technology, which has eliminated many high-paying but low-tech jobs through automation and, with the advances in telecommunications, outsourcing. Workers who can handle and

26 The international distribution of household wealth October 2010

more importantly develop new technology are, on the other hand, extremely valuable and well rewarded.

Although the financial crisis, recession and housing market crash have had a negative impact on household wealth levels, the US is still home to the largest number of millionaire households in our sample, both in 2010 and 2020. Our estimates indicate that over the previous decade the number of millionaire households grew by 27%, to 9.8 million households with net wealth of at least US$1m, of which almost half a million were worth at least US$30m. Looking forward, prospects for wealth creation are positive. Our forecasts suggest that the number of households with net wealth of at least US$1m will more than double to almost 21m by 2020, while households with wealth in the upper bracket of at least US$30m will increase by a third to 620,000. The combined net worth of US millionaires is set to rise from an estimated US$36 trillion in 2010 to US$87 trillion by 2020.

Table 3 .25 : N umber of households in the US with wealth in specified brackets (000s) and total wealth holdings of millionaire households

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 5,731 6,736 7,086 7,753 11,510 15,748 Net worth of $5m-$30m 1,597 2,128 2,206 2,292 2,886 4,183 Net worth above $30m 405 478 487 496 550 620 Total wealth holdings of millionaires (US$ Bn) 24,796 32,398 36,170 38,604 57,692 87,115 Source: Oxford Economics

The quality of the data available for the US has also allowed us to compute the number of millionaire households when primary residence and consumer durables wealth are removed from total net worth 3. This estimate gives an idea of the number of households with investable wealth of at least $1m. As expected, the number of households in this group is significantly lower than when the primary residence and consumer durables are included; approximately 29% of households in the ‘broad’ measure of net worth drop out of the measure when only investable assets are included. Despite this, an impressive 6.9 million households are estimated to have had investable wealth of at least $1m in 2010, rising to 12.5 million by 2020.

Table 3.26 : Number of households in the US with wealth in specified brackets (000s) and total net worth of millionaire households (excluding primary residence and durables)

2000 2009 2010 2011 2015 2020 Net worth of $1m-$5m 4,598 4,580 4,728 4,884 5,869 8,797 Net worth greater than $5m 1,840 2,123 2,212 2,292 2,901 3,682 Total wealth holdings

of millionaires (US$ Bn) 18,951 25,338 26,139 27,432 41,400 64,788

Source: Oxford Economics

3 Unfortunately the rich list data does not provide enough detail on asset holdings for us to compute the number of households with at least $30m of investable wealth.

27 The international distribution of household wealth October 2010

5 Wealthy households across US states

As the world’s largest economy, the US is also home to the highest number of wealthy households. With over three times as many millionaires as the second placed country in our sample in both 2009 and 2020, the US is a key centre for wealth management. Against this background, we have examined the current geographic distribution of wealth within the US using state-level data provided by ESRI, and forecasted how the number of wealthy households will change over the next ten years.

As illustrated by Table 4.1, it is not surprising to find that higher numbers of millionaire households are found in the income-generating regions along the East and West Coasts. With the exception of Hawaii, where high property prices and a highly unequal wealth distribution results in a relatively large number of millionaires, the states with the ten highest densities of millionaire households are located on the coast (see Table 4.2). California alone had 1.4m households with net worth above US$1m in 2009, an impressive 14% of the total number in the country. Conversely, the states with the lowest density of millionaires in 2009 are all located in the Mid-West or the South; only 3.6% of households in Mississippi were worth $1 million in 2009.

In order to forecast changes in the number of wealthy households, we first estimated the split between financial and non-financial wealth at the state-level. We then used our forecasts for the growth in house prices at the state level, national estimates of growth in financial wealth 4, and state population projections to forecast forward the number of millionaire households in each state to 2015 and 2020. The forecasts for house prices by state were estimated using the national level forecast weighted by our state level GDP forecasts, as a proxy for different demand conditions across the country.

Our forecasts suggest that California will continue to be home to the most millionaires in the US, with an expected 2.8 million in 2020, whilst New Jersey will remain the most densely populated, with over 25% of households expected to be millionaires by 2020.

Figure 4.1 illustrates how the number of millionaire households is forecast to change in each state. California easily tops the rankings, with an additional 1.5m households expected to have net wealth in excess of $1m by 2020. Second in the rankings is Texas, where the number of millionaire households is forecast to rise by around 1m. But it is the east cost of the US where wealth creation is forecast to be most heavily concentrated over the next decade, with Florida (+900k) and New York (+800k) standing out among a cluster of rapidly growing states. The increase in number of millionaire households is also projected to be relatively rapid in the Midwest, particularly Ohio and . In contrast, wealth creation among the states of the Great Plains and the Mountain States is

4 We assumed that financial markets in the US are fully integrated, and that households in each state hold the same portfolio of financial assets as at the national level.

28 The international distribution of household wealth October 2010

forecast to be relatively sluggish over the next decade, although and Colorado stand out as relatively strong performers in the region.

Figure 4.1: Change in number of US households with net assets above $1m

Source: Oxford Economics

29 The international distribution of household wealth October 2010

Table 4.1: Number of Millionaire Table 4.2: Density of Millionaire Households Households (000s) (percent) 2010 2015 2020 2010 2015 2020 Alabama 89 143 206 Alabama 4.7 7.5 10.7 Alaska 22 32 46 Alaska 8.9 12.2 16.9 Arizona 166 283 434 Arizona 6.8 10.2 14.0 Arkansas 65 99 140 Arkansas 5.6 8.3 11.4 California 1,319 2,105 2,745 California 10.3 15.8 19.5 Colorado 180 273 378 Colorado 9.1 13.5 18.0 Connecticut 194 248 314 Connecticut 14.2 18.1 22.6 Delaware 23 36 52 Delaware 6.6 10.1 14.0 District of Columbia 29 37 45 District of Columbia 11.1 15.0 19.0 Florida 596 995 1,445 Florida 8.0 11.9 15.8 Georgia 327 474 674 Georgia 8.9 12.2 16.3 Hawaii 48 71 92 Hawaii 10.8 15.5 19.5 Idaho 42 66 95 Idaho 7.2 10.7 14.4 Illinois 434 591 803 Illinois 8.9 12.0 16.2 Indiana 168 257 365 Indiana 6.6 10.0 14.0 Iowa 78 124 170 Iowa 6.3 10.1 13.8 Kansas 76 118 168 Kansas 6.8 10.5 14.8 Kentucky 95 145 207 Kentucky 5.4 8.2 11.5 Louisiana 77 112 160 Louisiana 4.5 6.6 9.3 Maine 34 50 71 Maine 6.1 8.7 12.1 Maryland 221 347 474 Maryland 10.3 15.4 20.0 Massachusetts 352 474 603 Massachusetts 13.9 18.5 23.2 Michigan 297 416 583 Michigan 7.6 10.4 14.4 Minnesota 142 239 341 Minnesota 6.7 11.0 15.0 Mississippi 45 61 86 Mississippi 3.9 5.4 7.5 Missouri 162 239 333 Missouri 6.8 9.8 13.4 Montana 20 31 44 Montana 5.0 7.8 10.6 Nebraska 43 68 98 Nebraska 5.9 9.4 13.4 Nevada 84 128 157 Nevada 8.2 10.9 11.8 New Hampshire 54 83 117 New Hampshire 10.3 15.4 20.5 New Jersey 443 662 831 New Jersey 13.7 20.1 24.6 New Mexico 48 78 109 New Mexico 6.0 9.6 13.2 New York 758 1,121 1,458 New York 10.4 15.4 20.0 North Carolina 287 431 615 North Carolina 7.6 10.8 14.5 North Dakota 12 23 34 North Dakota 4.4 8.3 12.3 Ohio 332 484 666 Ohio 7.2 10.5 14.4 Oklahoma 78 126 182 Oklahoma 5.3 8.5 12.1 Oregon 112 200 296 Oregon 7.4 12.6 17.6 Pennsylvania 401 581 804 Pennsylvania 8.1 11.6 16.0 Rhode Island 33 50 69 Rhode Island 8.1 11.9 16.1 South Carolina 115 191 264 South Carolina 6.3 10.3 13.6 South Dakota 15 28 42 South Dakota 4.7 8.5 12.6 Tennessee 178 263 370 Tennessee 7.0 10.0 13.5 Texas 717 1,117 1,592 Texas 8.0 11.8 15.7 Utah 51 87 130 Utah 5.6 9.3 13.0 Vermont 19 32 45 Vermont 7.5 11.9 16.4 Virginia 264 428 596 Virginia 8.6 13.4 17.6 226 372 534 Washington 8.6 13.5 18.2 West Virginia 33 50 70 West Virginia 4.4 6.6 9.3 Wisconsin 159 260 368 Wisconsin 6.9 11.1 15.4 Wyoming 14 21 30 Wyoming 6.1 9.8 13.7

Source: Oxford Economics/ESRI Source: Oxford Economics/ESRI

30 The international distribution of household wealth October 2010

6 Conclusion

An understanding of the future path and distribution of wealth creation from a global perspective is crucial for wealth managers. In particular, it is important to have a view on the likely evolution of various wealth cohorts of interest in order to gauge the future size of national markets and develop appropriate business strategies.

Against this background, we have examined the population of wealthy households in a sample of 25 economies chosen for their size, growth potential and strategic importance. Our results indicate that the US and Europe will remain the global centres of wealth over the next decade, being home to the largest population of wealthy households. On the other hand, the Emerging Market economies will prove more dynamic in terms of growth rates, creating significant opportunities for wealth managers seeking to gain a share of these potentially lucrative markets.

Also presented are the results of a more in-depth analysis of the world’s richest economy, the United States, focussing on the number of wealthy households at the state level. Our forecasts show that California will continue to be home to the most millionaires in the US in 2020, whilst New Jersey will continue to have the highest concentration of wealth. In terms of the projected increase in numbers of millionaire households, California easily tops the rankings, with an additional 1.5m households expected to have net wealth in excess of $1m by 2020. Second in the rankings is Texas, where the number of millionaire households is forecast to rise by around 1m. But it is the east cost of the US where wealth creation is forecast to be most heavily concentrated over the next decade, with Florida (+900k) and New York (+800k) standing out among a cluster of rapidly growing states.

31 The international distribution of household wealth October 2010

7 Appendix: Methodology

This section presents in more detail our approach to estimating and forecasting the numbers of wealthy households by country.

7.26 Estimating the current number of wealthy households

The first stage of our methodology required estimating the current (2010) aggregate level of household wealth by country. Data on the aggregate level of household wealth in each economy was obtained from official sources (such as national statistical offices) for Australia, Canada, Germany, Italy, Japan, the Netherlands, Singapore, Spain, Sweden, Switzerland, the UK and the US. For those countries where data was incomplete (or nonexistent), this was supplemented with our own estimates. As a starting point for constructing these values, we used the cross-country estimates of per capita wealth in the year 2000 provided in Davies et al. (2007) 5. These per capita estimates were scaled up using population data and projected forward to 2010 using the forecasting methodology described below.

The next stage involved estimating the current distribution of household wealth. National survey data on the distribution of household wealth was used where available. For other countries, we implied the distribution of wealth based on income inequality data, which we obtained from the World Income Inequality Database. In addition to these sources, we also used survey data on the super- rich from media sources such as Forbes magazine to construct a richer picture of the upper tail of the distribution.

The final stage of the estimation procedure involved calculating the number of individuals holding assets above certain thresholds (i.e. those falling within categories such as ‘high net worth’). After calculating the average wealth levels in each percentile of the population for which data is available, it was possible to plot a chart of average wealth against population. Based on this chart, as well as data on total wealth levels and population, we calculated the wealth cohorts of interest.

5 Davies, J.B., S. Sandstrom, A. Shorrocks & E.N. Wolff “Estimating the level and distribution of global household wealth”, University of Western Ontario EPRI Working Paper Series, No. 2007-05

32 The international distribution of household wealth October 2010

Chart 4.1: Illustrative distribution of US household wealth

United States: Household net worth (2009)

Wealth ($m) 16 14

12 10

8 6 4

2 0

0 20 40 60 80 100 Households with wealth below threshold (%) Source : Oxford Economics

This exercise is illustrated by Chart 4.1 above for the case of the United States (note that this chart excludes data points at the extreme high end of the distribution). The chart indicates, for example, that just over 10% of households had net worth above the $1m threshold, which corresponds to approximately 9.3m households. Exact numbers can be identified by estimating log-linear relationships.

7.27 Forecasting wealth cohorts

As a starting point for the forecasting process, we estimated a breakdown of net wealth holdings for each cohort. Total net worth (W) for each cohort is defined by the following identity:

W = stocks d + stocks f + bonds d + bonds f + cash + buseq + housing – Lmort - Lother

As shown above, assets are assumed to be spread between five broad categories: domestic stocks ( stocks d), foreign stocks ( stocks f), domestic bonds

(bonds d), foreign bonds ( bonds f), cash ( cash ), business equity ( buseq ), and real estate ( housing) ; loans are categorised as either mortgages ( Lmort ) or non- mortgage debt ( Lother ). Note that for the United States, where there is very detailed data, we included an extra category ( consumer durables) which captures all other real assets (such as vehicles).

Estimates of the portfolio composition of the various wealth cohorts were based on official survey data where available and imputed for those countries where such data is lacking. In all countries we assumed some degree of home bias in the holdings of stocks and bonds, with the exact degree dependent on the institutional characteristics of the country. Chinese households, for example,

33 The international distribution of household wealth October 2010

were assumed to have no access to international markets (given the very strict controls imposed by the authorities) and as a result hold no foreign stocks or bonds. In contrast, we assumed that households in the US have 75% of their total stock holdings in domestic equities and 25% in foreign equities.

Growth in each of the individual categories was then forecast based on our view on relevant factors, so that the growth rate of total wealth varied across the cohorts instead of being imposed on a static distribution.

The following assumptions drive our forecasts of the wealth categories:

 Domestic stocks and business equity holdings are driven by forecasts of the share price index. The share price forecast for the economy over the next decade is based on a model of the equilibrium value of shares that incorporates features of a dividend-yield and a price-earnings model.

 Foreign stock holdings are driven by a weighted global average of stock market indices, as well as being exposed to movements in the effective exchange rate.

 Domestic bond holdings vary inversely with the domestic long-term interest rate on 10-year benchmark government bonds. Long term interest rates are related to fundamentals such as government debt levels and short term interest rates.

 Foreign bond holdings vary inversely with a weighted global average of long- term interest rates. In addition, holdings are exposed to revaluation through changes in the effective exchange rate.

 Cash holdings increase in line with the short-term interest rate in the economy. Short term interest rates are based on a Taylor rule plus a money- market spread.

 Real estate holdings rise in line with house prices. Our house price forecast is driven by relevant economic factors, such as incomes and interest rates, as well as demographics.

 For the US, the value of consumer durables was assumed to depreciate by 10% each year.

 Mortgage loan growth is linked to house prices and long-term bond yields.

 Non-mortgage loan growth increases in line with the short-term interest rate.

 In addition to asset revaluation, new asset holdings are also acquired. Financial wealth is augmented by the estimated net acquisition of financial assets (the difference between income, consumption and private residential investment), with the rise shared between the various categories according to their relative size.

 Real estate holdings are augmented by investment in private dwellings, with rise apportioned across the various categories according to the relative size of their real estate holdings.

34 The international distribution of household wealth October 2010

 For the US, forecasted spending on consumer durables each year augments the current holding.

This model for the different components of wealth was incorporated within Oxford Economics’ Global Model. This enabled alternative forecasts of high net worth individuals to be made under varying assumptions for key economic and financial variables.

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