Main financial assets discussed in the article:
1. Household wealth (including pension savings, property holdings, and direct investments)
2. Public equity investments
3. Bonds
Top 3 key points:
1. The high returns of recent years will lead to lower returns going forward. US household wealth is currently elevated compared to GDP, and the balance between the two needs to be re-established. Vanguard forecasts that annual returns on most risk assets will be much lower over the next ten years.
2. Globalization is stalling, and international trade is slowing down. Protectionist measures adopted by the G20 have increased trade frictions, leading to reduced economic growth and lower corporate profits. Countries forming new alliances may benefit from establishing new trade patterns.
3. As people get older, they tend to shift their portfolio composition in favor of bonds. The baby boom generation, which has been a major equity investor, is now switching from equities to bonds as they enter retirement. This shift may result in a low-return environment for equities in the 2020s.
Recommended actions:
- **Sell** risk assets or consider reducing exposure to risk assets due to the expectation of lower returns in the future.
- **Hold** bonds or consider increasing allocation to bonds, especially for older investors who are transitioning to retirement.
- **Consider a cautious approach** given the imbalance between wealth and GDP and the potential impact of investors catching up on their allocation shifts from equities to bonds.
### Summary
The wealth per adult in the UAE at the end of 2022 was $152,556, according to a global report. The UAE's total household wealth stood at $1.2 trillion, and the ratio of household debt to gross assets was 7.8%.
### Facts
- 💰 Total household wealth in the UAE at the end of 2022 was $1.2 trillion.
- 💸 Wealth per adult in the UAE at the end of 2022 was $152,556.
- 📉 The ratio of household debt to gross assets in the UAE in 2022 was 7.8%.
- 📈 Wealth per adult in the UAE grew by 18.7% in 2021 using current exchange rates and by 20.6% using smoothed exchange rates.
- 🔄 However, in 2022, the growth of wealth per adult in the UAE differed depending on exchange rates. It rose by 11.7% in current exchange rates and by only 4.1% using smoothed rates.
- 💼 The UAE hosts a high number of wealthy expatriate entrepreneurs, with an estimated 4,500 high net worth individuals relocating to the country in 2023.
- 🌍 Globally, total net private wealth fell by $11.3 trillion to $454.4 trillion at the end of 2022.
- 📊 Wealth declines in 2022 were mostly due to financial assets, while non-financial assets like real estate remained resilient.
- 🌍 Wealth losses were concentrated in wealthier regions like North America and Europe, with the United States, Japan, China, Canada, and Australia experiencing the largest losses.
- 📉 Wealth inequality also fell in 2022, with the wealth share of the global top 1% decreasing to 44.5%.
- 📈 Global median wealth increased by 3% in 2022, contrasting with the 3.6% fall in wealth per adult.
- 🔮 The report projects that global wealth will rise by 38% over the next five years, reaching $629 trillion by 2027. Wealth per adult is expected to reach $110,270, and the number of millionaires is forecasted to reach 86 million.
- 🗣️ Regarding the report, Iqbal Khan, president of global wealth management at UBS, emphasized its valuable insights, while Anthony Shorrocks, economist and report author, discussed the decline in wealth driven by high inflation and currency appreciation.
- 🔒 Nannette Hechler-Fayd’herbe, chief investment officer at Credit Suisse, highlighted the resilience of wealth during the pandemic but noted the reversal in 2022 due to inflation, rising interest rates, and currency depreciation. She expects global wealth to rise by 38% in the next five years.
Recent profit reports from companies such as Amazon, Walmart, and Home Depot, along with other consumer statistics, indicate that the case for a 2023 recession is weakening, as the consumer economy shows resilience with rising real incomes, substantial savings, and continued spending in sectors like automobiles and services.
Global stock markets are expected to experience a correction in the coming months, although analysts predict marginal gains by the end of 2023, as concerns about underperformance persist and money market rates overshadow the appeal of equities.
The Swedish economy is expected to experience a downturn over the next two years, with GDP forecasted to shrink in 2023 and 2024 due to low domestic demand and a slowdown in export growth, making it one of the worst-performing economies in the EU; however, there is uncertainty and the possibility of a milder downturn depending on the resilience of the economy. Furthermore, the Swedish krona is expected to continue weakening until mid-2024, and household incomes are projected to fall until 2025, but households are strengthening their financial positions and reducing debt.
A global recession is looming due to rising interest rates and the cost of living crisis, leading economists to warn of a severe downturn in the post-Covid rebound.
China's unexpected economic slowdown, driven by excessive investment in the property sector and local government spending, is leading experts to question whether a collapse is imminent, although they believe a sudden collapse is unlikely due to China's controlled financial system; however, the slowdown will have implications for global growth and emerging markets, particularly if the U.S. enters a recession next year.
Forecasters have decreased their growth expectations for China due to deflation, rising youth unemployment, and a property-market crisis, with GDP predicted to rise by only 5.1% in 2023 and 4.5% in 2024.
Chinese consumer spending has rebounded in certain sectors, but concerns persist over the property market and GDP growth falling below 5%, according to Shehzad Qazi, managing director of China Beige Book.
The recent downturn in global property prices is ending as average home prices are expected to fall less than anticipated and rise into 2024, according to a Reuters poll, due to factors such as high savings, limited supply, and rising immigration. However, this poses challenges for first-time homebuyers and rental affordability is expected to worsen.
Rapidly falling house prices have caused a "cost of owning crisis," with tens of thousands of homeowners falling into negative equity over the past year, making it difficult to sell or remortgage properties. Experts predict that more households will face difficulties as house prices continue to decline, with the Government's tax and spending watchdog expecting a 10% fall in prices. However, there are expectations of a rebound in house prices in the future, particularly for those intending to live in their homes for several years.
The US experienced a significant decline in wealth last year, but millennials saw their net worth rise due to their higher investment in real estate, debunking the myth that they are financially struggling.
Goldman Sachs chief economist Jan Hatzius predicts that US consumers will remain resilient in 2024, with a projected growth of around 3% in real disposable household income, indicating that a decline in real consumer spending is unlikely despite signs of stress.
Hong Kong's ultra-wealthy population decreased by 23% in 2022, while New York and Singapore saw growth, according to a report by Altrata, with China's Covid-19 restrictions, economic slowdown, geopolitical issues, and equities slump cited as reasons for the decline. However, Altrata predicts that the global super-rich population will rebound by 2027, reaching 528,100 individuals with a net worth of $60.3 trillion.
The surging stock market and rebounding property values have driven U.S. household wealth to a record high of over $154 trillion in the second quarter, fully recouping losses from last year's bear market, according to Federal Reserve data.
Mortgage rates remain elevated, slowing housing market activity, and while home prices are not likely to fall significantly, rates are projected to decrease in 2023 and 2024.
The US consumer is predicted to experience a decline in personal consumption in early 2024, which could lead to a potential recession and downside for stocks, as high borrowing costs and dwindling Covid-era savings impact household budgets.
The number of ultra wealthy individuals worldwide decreased by 5.4 percent last year, and their combined net worth fell by 5.5 percent to $45.4 trillion, with Asia experiencing the largest decline due to China's Covid policies and the war in Ukraine.
US household income fell by the most in over a decade in 2022, showing the impact of rising costs and the expiration of pandemic relief programs, with the median income dropping 2.3% and marking the third consecutive annual decline, contributing to concerns about the financial well-being of American families.
Jeremy Grantham warns of a looming recession by early 2025, expresses concerns about US stock market, economy, and financial system, discourages investment in real estate and commodities, but supports climate-change stocks like Tesla.
Despite a recent slump, research firms including Freddie Mac, Zillow, and the National Association of Realtors predict that home prices will continue to rise in 2024 due to a shortage of housing inventory and strong demand, with NAR forecasting a 2.6% increase. However, Moody's Analytics and Morgan Stanley expect home prices to slightly decrease in 2024 due to declining affordability and increased housing supply.
The forecasted U.S. recession in 2024 is expected to be shorter and less severe than previous recessions, with the economy's interest-rate sensitivity much lower due to reduced leverage and elevated savings from the postpandemic environment, leading investors to consider positioning for investment opportunities that will drive markets into 2024.
The UK economy is predicted to continue its stagnant state in 2024, with some economists and business groups even foreseeing a recession, while others, including the Bank of England, the IMF, and the OECD, anticipate modest growth despite high interest rates and a slowing global economic outlook. Different factors, such as labor hoarding and regions bucking the trend, complicate the overall picture, but overall, a stagnant or minimally growing economy seems likely.
Inflation is expected to rebound in 2024 due to a mismatch between supply and demand created by the shift from services to goods during the pandemic, as well as a chronic shortage of workers, according to BlackRock strategists. This could lead to higher interest rates and a higher risk of recession.
Experts are divided on the future of US home prices, with some predicting a surge and others expecting a decline, as homeowners are reluctant to sell their homes with cheap mortgages and buyers are hesitant to overpay. Jeremy Grantham believes prices will come down by 30%, while Barbara Corcoran predicts a surge of 15% to 20% once interest rates decrease. David Rosenberg forecasts a recession and a potential 25% plunge in house prices, while Glenn Kelman believes the housing market has hit rock bottom. Vincent Deluard expects prices to drop when homeowners eventually sell.
The decline in net household financial savings is largely due to the increase in their liabilities, with household financial liabilities rising from 3.8% to 5.8% of GDP in 2022-23, leading to concerns of growing household distress and potential implications for the broader economy.
China's growth is expected to slow down in 2024, with the World Bank attributing the gloomy outlook to a slowdown in China, weak indicators, stagnant house prices, increased household debt, and trade tensions with the US.
Global economic growth is expected to slightly increase in 2024, but the United Nations warns of a precarious situation and significant economic headwinds that may lead to a slowdown in the U.S. and a potential recession in the eurozone. The UN also highlights the escalating debt distress among frontier economies and calls for more oversight and regulation of food companies in the global trade system.
The global venture capital market continued to decline in the third quarter of 2023, according to data visualization provided by TechCrunch+.
The IMF predicts that the world economy will grow at a slower pace of 2.9% in 2024 due to ongoing risks from higher interest rates, the war in Ukraine, and the eruption of violence in the Middle East, highlighting the need for tight monetary policy to combat inflation.
Experts predict that mortgage rates will start to trend downward in 2024, although the rate of decrease may not be very fast.
High mortgage rates are expected to fall over the next year, with rates projected to decrease to 6.1% by the end of 2024 and the 30-year mortgage rate falling to 5.5% by the end of 2025, driven by a slowing U.S. economy and signs of a weakening economy, according to the Mortgage Bankers Association.
Mortgage rates are expected to decrease significantly by the end of 2024, but a shortage of available homes will lead to higher sales prices for the next few years. Despite the drop in rates, the low inventory of new homes will drive up purchase costs. Additionally, a sluggish economy, rising unemployment, and declining inflation may lead to a recession in early 2024. However, the combination of these factors will eventually help bring down mortgage rates further in the following years.
Despite recent signs of resilience, Russell Investments argues that a recession in 2024 is still likely due to lag effects from higher interest rates, raising their near-term recession probability to 55%.
Economists predict that 2023 will have the slowest home sales year since the 2008 housing bubble burst, with persistently high mortgage rates and low inventory deterring buyers.
The consensus world economic and market view for 2024 suggests weaker growth and a possible U.S. recession, leading to a strong bond rally; however, recent economic indicators from the United States and China point to the possibility of a different outcome with revving up economies and accelerating momentum.
The US economy experienced strong growth in the third quarter of 2023, fueled by consumer spending, but there are warning signs of a possible recession due to the impact of rate hikes on auto loans, credit cards, and student debt, as well as higher borrowing costs and the potential for deeper recession if the Federal Reserve continues to raise interest rates.
Summary: Capital Economics predicts that mortgage rates in the United States are unlikely to fall below 6% before the end of 2025, due to higher forecasts for U.S. Treasury yields, which will dampen housing affordability and sales volumes.
Consumer spending continued to drive economic growth in the third quarter of 2023, as gross domestic product (GDP) increased at a rate of 4.9%, beating expectations and putting recession fears to rest. However, concerns about high mortgage rates and limited housing supply could slow economic growth in the coming quarters.
High inflation is expected to persist in the global economy next year, posing a risk of interest rates remaining higher for longer than anticipated, according to a Reuters poll of economists. While some central banks were initially predicted to start cutting rates by mid-2024, the survey suggests that a growing number of economists are now pushing the more likely date into the second half of next year.
