Political instability in 2018 dented the net worth of billionaires around the globe.
Billionaires Mark Zuckerberg of Facebook and Jack Ma of Alibaba.
After a relatively calm 2017 allowed the world’s stock markets to steadily trend upwards, volatility returned in 2018. The US was responsible for one of the main sources of economic instability—President Donald Trump escalated his trade war with China while the Federal Reserve continued its monetary tightening. The UK’s prolonged departure from the European Union and slowing global economic growth also rattled the markets.
All of these developments left a dent in the net worth of the world’s richest people—their net wealth fell in 2018 by 3% ($2 trillion). That’s according to the latest edition of the World Wealth Report, published annually by consulting firm Capgemini, which tracks High Net Worth Individuals (HNWIs).
HNWIs from the Asia-Pacific region experienced the greatest wealth decline at 4.8% ($1 trillion). Chinese markets were damaged by the impact of tariffs imposed by the US on hundreds of billions of dollars of goods as well as pressure on the yuan, although Beijing rejected President Trump’s charge that China is a currency manipulator. In Hong Kong, the Hang Seng Index's lack of diversity meant that fluctuations in a few economic sectors trimmed the net worth of the most affluent.
China’s Balance of Trade in 2018
European HNWIs experienced a 3.1% ($500 billion) decline in their wealth in 2018. Uncertainty driven by inconclusive Brexit negotiations weighed heavily on UK assets, particularly sterling. Slowing global growth, made worse by falling Chinese demand due to trade tensions with the US, disrupted the export-dependent German economy.
Among developed countries, American HNWIs saw the smallest drop in wealth at 1.1% ($200 billion) thanks to the resilience of the US economy. President Trump’s tax cuts also helped as did rising interest rates which grew by 3% last year.
There was better news in the Middle East where HNWI's wealth grew by 4.3% ($100 billion). The oil industry—which underpins the region’s riches—benefited from government support in the form of fiscal and structural policies and HNWIs in Saudi Arabia and Kuwait profited. However, HNWIs in the United Arab Emierates bucked the regional trend and lost 9% of their net worth, mostly due to a drop in the emirate’s stock market caused by falling demand in the real estate and retail sectors.
The world’s HNWIs reacted to last year’s market volatility by switching to safer havens: cash and cash equivalents became the most popular asset class while equities dropped to second place. However, the shift to cash should not end up costing HNWIs in 2019, despite the rally by global stock markets at the start of the year.
"With HNWIs diversifying portfolios, we do not anticipate a significant impact in terms of them losing out on a market rebound," explained Chirag Thakral, Deputy Head at Capgemini’s Global Financial Services Market Intelligence Strategic Analysis Group.
The report shows HNWIs also moved some of their assets into alternative investments which tend to generate higher returns than cash and provide shelter from fluctuating equity markets. Foreign exchange was popular in developed countries with relatively stable currencies in North America and Europe while Asia Pacific’s burgeoning startup scene and rising number of rapidly growing early-stage companies attracted investment from the region’s HNWIs.