By 2015, financial wealth of Asia would surpass that of the US, according to a report by Frederic Neumann, Co-head of Asian Economic Research, HSBC. China and Japan have played a major role in pushing wealth creation in the region. But even without China, which accounts for about 34 per cent of Asia’s wealth, the region would overtake US financial wealth in another 10 years.
While the numbers paint a bright outlook for the region, the forecast comes with the obvious caveat: “if current trends persist”. The report goes on to warn that the road ahead is littered with potholes, and it remains to be seen whether Asia can navigate these without a major economic accident. The report adds, quite dramatically, “We think so, but history is sobering.”
Where does India figure?
So, where does India figure among the rising Asian nations? While China and Japan together have 73 per cent of Asia’s wealth pie, India shares 4 per cent of the region’s financial wealth, which was just 3 per cent in 2005. China’s share in Asian wealth grew from 13 per cent in 2005 to 34 per cent in 2013 as Japan’s dropped from 63 per cent to 39 per cent in the last eight years.
However, the prospects are pretty rosy for India. The report says, “Over the coming five years, on current trends, financial wealth is likely to grow even faster in ASEAN and India than in China.”
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“India might have had a stronger showing last year if it wasn’t for the slide of its currency over the previous twelve months,” the report adds.
The realty boom & doom
One reason why US financial wealth is now being eclipsed by Asia is that Americans are holding a greater share of their assets in real estate. The value of residential property is down from a peak of $25 trillion in 2006, but is still larger than either Japan’s or China’s. Also note that US financial wealth, after a brief dip around the global financial crisis, quickly started to recover. On the other hand, China’s real estate value has increased rapidly. Since 2008, the relative value of China’s real estate is higher than America’s. In 2012 it exceeded Japan’s.
China could add some $25 trillion by 2018 (equivalent to the entire value of the US residential real estate stock at its peak in the mid-2000s). This will comfortably exceed Japan’s increase in financial wealth of $8 trillion and even America’s of just over $16 trillion. But, what’s interesting to look at as well is the projected growth of financial wealth over the next five years. Here, China, with a rise of more than 80 per cent, is again well ahead of the US (25 per cent), but lags economies like India, Indonesia, Korea, Malaysia, Thailand, the Philippines and Vietnam.
The bottom line
The “Wealth of Asians’ report acknowledges that it is hard to pinpoint how rich the region has become exactly and it’s even more difficult to say how the wealth is distributed among individuals. This is mainly because of lack of consistent data, a big chunk of which is held by governments than individuals and financial instruments, such as bonds and equity, fluctuate
However, the fact remains that the rise of Asian wealth has been ‘stupendous’ and, if current trends persists, the larger economies will enjoy a bigger absolute increase in financial wealth over the coming years.
Early in the report, Neumann highlights that “not everyone in Asia is revelling in new-found wealth”. “Amid all the hype, it’s often forgotten that the majority of people in the region continue to live in poverty, with those fancy bags, let alone more basic necessities, still a distant dream.”