Thursday, June 6, 2013

A Rich De-Couple

Above are two recently published charts (from Swiss private bank Julius Baer and the BCG consulting group) that essentially tell the same story – that Asia’s wealth creation continues to outpace the rest of the world, and the ranks of US$ millionaires (excluding property) continue to swell throughout the region, particularly in China. China now has over one million millionaires, and that figure is expected to grow by a staggering 15% per year through 2015. That growth rate leaves every other mature economy in the dust, including Hong Kong, which is expected to grow millionaires at 8% per year. "Asia's growth and wealth creation engine has de-coupled from mature economies, and there are clear indications that China, in particular, is moving up the value chain," says Stefan Hofer, emerging market economist at Julius Baer.
A consequence of all this proliferating good fortune is the higher inflation rate of prices of “luxury” related goods and services. In Shanghai, prices for high end goods rose on average by 10% last year. University education costs at elite universities in the US have jumped by an eye-popping 30%. Fine wine rose 16% in price.
In economic and financial parlance, “de-coupling” refers to a phenomenon whereby two forces that were once tightly correlated (in this case, Asian wealth and US/European wealth) no longer become so. Since the 2008 economic crisis and with the subsequent Euro crisis, the steady churning of wealth in Asian countries has decidedly had a different trajectory than in the West. Sadly, however, indicators such as the Gini coefficient are showing that the fortunes of those already well off are also de-coupling from the “have nots'”. This widening gap is one that we should all hope also de-couples (and reverses) in the future from present realities.

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