The international distribution of household wealth 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 Australia ................................................................................................... 10 4.2 Brazil ........................................................................................................ 10 4.3 Canada..................................................................................................... 11 4.4 China........................................................................................................ 12 4.5 France ...................................................................................................... 13 4.6 Germany .................................................................................................. 13 4.7 Hong Kong ............................................................................................... 14 4.8 India.......................................................................................................... 15 4.9 Italy........................................................................................................... 15 4.10 Japan...................................................................................................... 16 4.11 Malaysia ................................................................................................. 17 4.12 Mexico.................................................................................................... 17 4.13 Netherlands............................................................................................ 18 4.14 Norway ................................................................................................... 19 4.15 Poland .................................................................................................... 20 4.16 Russia .................................................................................................... 20 4.17 Singapore............................................................................................... 21 4.18 South Korea ........................................................................................... 22 4.19 Spain ...................................................................................................... 22 4.20 Sweden .................................................................................................. 23 4.21 Switzerland............................................................................................. 24 4.22 Taiwan.................................................................................................... 24 4.23 Turkey .................................................................................................... 25 4.24 United Kingdom...................................................................................... 26 4.25 United States.......................................................................................... 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 distribution of wealth 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 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. 1 The international distribution of household wealth October 2010 1 Introduction The key determinants of medium-to-long term growth in the wealth management 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. 2 The international distribution of household wealth October 2010 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