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1、Inequality of wealth and its investment implicationsThis is for investment professionals only and should not be relied upon by private investors June 2014 Inequality of wealth and its investment implications THE INCREASING INEQUALITY OF WEALTH IN THE WORLD TODAY In my last column, which I wrote in m
2、id-April, I addressed monetary expansion at the hands of global central banks and its effect on asset price inflation. I made the point that with asset price inflation having exceeding consumer price inflation for many years now, the rich have been getting richer and the poor getting poorer, and hig
3、hlighted the risk of social unrest that might arise from that. Since then, Thomas Pikettys new bestselling book “Capital in the Twenty-First Century” has been weighing on my bedside table and on my mind in equal measure. Its central topic is the same that of the increasing inequality of wealth in th
4、e world today. The book has taken the economic and financial worlds by storm. The main reason for this is the clear way in which Piketty uses data to show the faster rate of growth in capital than income. But controversy has also been provided by the Financial Times, which has highlighted some incon
5、sistencies in the data, and by the socialist prescriptions advocated by the author to fix the inequality issue, notably a global wealth tax. Pikettys key point is that since the mid-1970s, growth in capital (or wealth) has exceeded growth in income (or GDP). If returns on capital exceed GDP growth r
6、ates, as has been the case, this will be the inevitable result. The owners of capital, as their pile gets bigger and bigger, find themselves taking an ever greater share of national income away from labour. This phenomenon also explains the long term decrease in the velocity of money that I mentione
7、d in my last column, which is simply a function of increasing levels of saving. The polarization of wealth is extraordinary. In last months column, I mentioned that the top 1% of the worlds wealthy own 46% of the worlds assets, according to Credit Suisses Global Wealth Report. In the US, this top 1%
8、 has increased its share of US wealth from 25% to 40% since the mid-1970s - slightly less than the overall world number. But importantly, all of that gain was actually accounted for by the top 0.1% (those with wealth in excess of US$20m), who saw their share of US wealth rise from around 7% to aroun
9、d 22%, according to work by Emmanuel Saez and Gabriel Zucman. Most of the gain in wealth has been concentrated among the uber-rich. MATTHEW SUTHERLAND is Senior Investment Director for Equities at Fidelity Worldwide Investment, leading the Asia-based equity product specialists and investment directo
10、rs. Before taking up this role in late 2012, he was Head of Research for Asia Pacific, based in Japan. WILL THE DISPARITY WIDEN IN THE FUTURE? So much for the past. Thomas Pikettys most eye-popping data concerns the future. He projects that the global wealth/income ratio, a measure of the relationsh
11、ip between capital and income, will rise from 440% in 2010 to 500% by 2030. This implies that the pool of global wealth will more than double from Euro313tn in 2010 to Euro667tn. For Asia, though, the next 15 years will be even more exciting. The disparity of wealth to income in Asia will rise faste
12、st of all geographical regions, from 433% in 2010 to 527% in 2030, and the total pool of wealth will rise a whopping 2.6x from Euro111tn to Euro297tn, according to Thomas Pikettys forecasts. Chinas wealth alone will rise 3.5-fold from Euro41.5tn to Euro148tn. IS THE TREND OF POLARISATION OF WEALTH I
13、RREVERSIBLE? Can anything derail this seemingly unstoppable trend towards polarisation of wealth? Well, yes, ultimately, a couple of things could. One could be that an ever-increasing pool of capital chasing a limited amount of investment opportunities causes the yields on those investments to decli
14、ne even further. Think yields on Hong Kong property, or US bonds, or equities for that matter as those asset classes get chased up, the returns fall. There are paper capital gains of course, but capital needs somewhere to go it can only take a profit in one asset class if it has a better alternative
15、 re-investment opportunity. This is likely to lead to asset bubbles, implying that the bull markets we are seeing in many asset classes have further to run. A second and more disturbing potential problem could be social unrest bringing about socialist responses such as those proposed by Piketty in t
16、he form of ultra-high taxes on the very rich. However, neither seems very likely in the medium term. WHAT ARE THE IMPLICATIONS FOR INVESTORS? Pikettys conclusion for Asia is not only that it is going to get richer, but that the polarisation of wealth will also rise, becoming increasingly concentrate
17、d in the hands of the ultra-wealthy. So what are the investment implications? Who will benefit? Ultimately of course the answer lies in consumption. What do rich people do with their money? Sectors such as autos, property, luxury goods, Macau gaming stocks, financial services such as brokers, asset
18、managers, insurance companies and stock exchanges, travel companies, hotel s and airlines should all benefit. Additionally, parents in Asia are very aware that the best chance of getting their children into the hallowed top 0.1% super-rich category is to give them a first class education. So educati
19、on stocks in Asia should also do well over time. Likewise, healthcare will benefit from a wealthier population that is aging fast on average. But investing is never simple. In the short term, there are reasons why these sectors may not perform so well. The first is anti-corruption. The drive against
20、 corruption in China has caused well-publicized declines in demand for conspicuous consumption goods, and the same may soon be repeated in India, where the new Modi government has already set up a team to investigate dirty money. At the same time, the possible withdrawal of quantitative easing by th
21、e Federal Reserve in the US could have a negative impact, as US liquidity tends to “leak” into emerging markets. And lastly, micro-economic controls in some markets such as Hong Kong and China to control property prices, for example, have helped to keep real estate stocks under pressure. The long te
22、rm trend, then, is clear wealth, and wealth disparity, in Asia is growing rapidly, and the long term prognosis must be excellent for luxury consumption and investment trends in the region. But in the short term, the waters are murkier. Again, I believe there is no substitute for in-depth analysis of
23、 individual stocks and sectors, such as that undertaken by Fidelity, before making an investment decision. Important Information This document is provided for information purposes only. Fidelity only gives information about its products and services. Investment involves risks. Any person considering
24、 an investment should seek independent advice on the suitability or otherwise of a particular investment. Fidelity is not authorised to raise, distribute or manage mutual funds or the relevant products in, or to provide securities investment management or advisory services to persons resident in, the mainland China. FIL Limited and its subsidiaries are commonly referred to as Fidelity or Fidelity Worldwide Investment. Fidelity, Fidelity Worldwide Investment, the Fidelity Worldwide Investment logo and F symbol are trademarks of FIL Limited. CM20140518G