THURSDAY, March 28, 2024
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Global volatility squeezes growth of Thai household financial assets

Global volatility squeezes growth of Thai household financial assets

The gross financial assets of Thai households rose by a meagre 0.8 per cent in 2018, one of the weakest increases since the financial crisis in 2008, according to the 10th edition of Allianz’s Global Wealth Report.

 



In the previous two years, growth rates of around 9 per cent were achieved, which puts the asset and debt situation of households in more than 50 countries/regions under the microscope, financial assets in 2018 across industrial and emerging countries/regions declined simultaneously for the first time, the report said.
Savers worldwide have found themselves in a bind, due to the escalating trade conflict between the US and China, Brexit and increasing geopolitical tensions, the tightening of monetary conditions and the normalisation of monetary policy.
The stock markets reacted accordingly, with global equity prices falling by around 12 per cent in 2018, which had a direct impact on asset growth. Global gross financial assets of private households fell by 0.1 per cent and remained more or less flat at 172.5 trillion euros, according to the report.
“The increasing uncertainty takes its toll,” said Michael Heise, chief economist of Allianz Group. “The dismantling of the rule-based global economic order is poisonous for wealth accumulation. The numbers for asset growth also make it evident: Trade is a no-zero-sum game. Either all are on the winning side – as in the past – or all are on the losing side – as happened last year. Aggressive protectionism knows no winners.”
The dismal performance was mainly due to a sharp drop in securities, by 6.6 per cent. Insurance and pensions, too, posted rather disappointing growth: They advance by just 3.2 per cent in 2018, the weakest increase in the last two decades. Bank deposits, on the other hand, increased by a more robust 4.8 per cent, clocking the highest growth in the last five years. Growth in liabilities accelerated to 6 per cent – the strongest increase since 2014. Thus, the debt ratio of households has crept up to 78.4 per cent, well above the regional average of 52.4 per cent (Asia ex-Japan), the report said.
The gross financial assets of Asian households declined by 0.9 per cent in 2018, marking the first decline since the 2008 financial crisis. The decline was triggered by a sharp fall in securities, mainly equities and investment funds, by 14 per cent. Bank deposits, on the other hand, and insurance and pensions were growing healthily by 8.7 per cent and 8.2 per cent, respectively.
When analysing portfolio structures, one trend becomes obvious: As Asian financial markets have become more sophisticated, the share of assets held in simple bank deposits has dropped significantly. It stood at 46.4 per cent at the end of 2018, 16 percentage points below the level at the beginning of the century, the report said. Correspondingly, the share of securities rose from around 20 per cent to 36.2 per cent, as more and more households invest their savings in capital markets. The share of insurance and pensions, however, was a mere 16 per cent, ie, half the global level.
“It is a paradox savings behaviour,” said Michaela Grimm, Allianz Group senior economist and co-author of the report. “Asian countries/regions age rapidly and many people save more because public pension schemes in many of these countries/regions are still in their infancy or provide only a basic pension in old age. But they seem not to embrace those products that offer the most effective old-age protection, namely life insurance and annuities. Both governments and the industry should step up their efforts further to offer attractive solutions in this field. This also holds true for initiatives to improve financial literacy and accessibility.”
Worldwide household liabilities rose by 5.7 per cent in 2018, a tad below the previous year's level of 6 per cent, but also well above the long-term average annual growth rate of 3.6 per cent. The global debt ratio (liabilities as a percentage of GDP), however, remained stable at 65.1 per cent, thanks to still robust economic growth. Most regions saw a similar development in that respect. But Asia (excluding Japan) is a different story. True, debt growth slowed down in 2018, to 13.8 per cent (2017: 15.7 per cent). But in the last three years alone, the debt ratio jumped by almost ten percentage points to 52.4 per cent, driven mainly by China where it increased by a whopping 15 percentage points to 54.0 per cent, the report said.
“Debt dynamics in Asia and particularly in China are of concern,” said Patricia Pelayo Romero, Allianz Group economist and co-author of the report. “Chinese households are already relatively as indebted as, say, German or Italian ones. The last time we had to witness such a rapid increase in private indebtedness was in the US, Spain and Ireland shortly before the financial crisis. However, compared to most industrialised countries/regions, debt levels in China are still markedly lower. There is still time to cope with the development and avoid a debt crisis,” according to the Allianz Global Wealth Report

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