Tuesday, 31 January 2023

Background Notes on “Personal wealth in a changing world – we are all responsible for ourselves”

5 min read

Moderator:

Emmanuel Daniel, Chairman, The Asian Banker

Guests:

Adam Khoo Yean Ann, Executive chairman and Chief Master Trainer, Adam Khoo Learning Technologies Group

 

Agenda

  • What are the questions frequently asked by clients and students regarding managing their own wealth?
  • How are the institutions (banks, fund managers, securities brokers and even insurance players) meeting the most fundamental needs of their customers?
  • Where the opportunities are in a traditional securities market?
  • Regarding the current global developments, how investors should think about opportunities?

Notes:

Global Wealth Trend: All the World’s Wealth in One Visual

  • In 2019, total world wealth grew by $9.1 trillion to $360.6 trillion, which amounts to a 2.6% increase over the previous year.
  • The U.S. remains by far the richest country in the world, controlling some $105.99T of wealth, or almost 30% of the entire world’s net worth.
  • Taken together, countries in Asia have a higher net worth than the U.S. at $141.21T, or about 39% of the world’s total.
  • The U.S., Europe and China control comparable amounts of the world’s wealth, indicating how important trade relationships are to the global economy.
  • Top 10 Countries with the Most Wealth in the World
  • 1. United States: $105.99T
  • 2. China: $63.83T
  • 3. Japan: $24.99T
  • 4. Germany: $14.66T
  • 5. United Kingdom: $14.34T
  • 6. France: $13.73T
  • 7. India: $12.61T
  • 8. Italy: $11.36T
  • 9. Canada: $8.57T
  • 10. Spain: $7.77T
  • Americans simply have a significantly higher net worth than anybody else in the world. Much of this can be explained by the astonishing growth in fortunes of the richest people. For example, the world’s 500 wealthiest people saw their fortunes grow by an incredible $1.2T last year alone, bringing their net worth to $5.9T. To put that in perspective, that’s more than the total for all of Africa ($4.11T).
  • Other countries are seeing similar patterns of growing inequality, which further helps explain our visual. The wealth of the richest 10% in China surpassed the U.S. last year. In fact, taken as a whole, Asian countries boast a collective net worth substantially higher than the U.S. ($141.21T). Perhaps the Chinese will start supporting higher taxes on the wealthy like they have in the U.S.

 

 Desjardins, J. (2020, January). All of the World’s Wealth in One Visualization. https://www.visualcapitalist.com. retrieved November 2020.

 

ASEAN: The emergence of a new middle class brings vast opportunities for global wealth management:

  • With about 600 million people, ASEAN countries represent only half of India’s population but collectively generate a larger gross domestic product. By 2020, Asean GDP is expected to grow at an annual average of 6 percent and reach $4.7 trillion.
  • By 2020, Asia is likely to contribute to more than half of the total global middle class population, with ASEAN accounting for more than $ 2 trillion of new consumption, according to the International Monetary Fund. Half of ASEAN’s projected population will be aged under 30.
  • The average age of people living in ASEAN’s five largest markets – Indonesia, Malaysia, Philippines, Singapore, and Thailand – is around 29, compared with 38 in US and China, 43 in Europe, and 47 in Japan.
  • As populations across ASEAN become more affluent and the region’s emerging middle class continues to expand, there is a pressing need for services that will help individuals and families preserve, protect and perpetuate their new found prosperity.
  • It is expected financial wealth in ASEAN to grow faster than in China over the next five years, creating opportunities in international wealth and asset management. ASEAN has one of the highest saving rates in the world at around 30 percent and international reserves amounting to $800 billion.
  • While financial assets remain heavily concentrated in cash and in some markets, concentrated on single assets such as stocks, investment behaviour among ASEAN savers are expected to eventually build a diversified portfolio of assets and move away from home biases.

China: Admist US China tension, China’s giant middle class is still growing, with the wealth of richest 10% surpassed the US:

  • Decades of economic development have fueled a massive increase in incomes in China. China’s Gross National Income (GNI) per capita has grown more than ten-fold since 2000, reaching $10,410 in 2019. Although this is significantly lower than the $43,861 average of OECD economies, China’s GNI per capita is on the high end among fellow BRICS countries. In 2019, China led Brazil ($9,130), South Africa ($6,040), India ($2,130), and came in just behind Russia ($11,260).
  • The increase in income has led to a rising middle class in China. China’s middle class has been among the fastest growing in the world, swelling from 39.1 million people (3.1 percent of the population) in 2000 to roughly 707 million (50.8 percent of the population) in 2018. This amounts to an increase of 667.9 million (or 47.8 percentage points).
  • Despite the economic slowdown and facing increased tariffs from a trade war with the US, China has surpassed America in having the highest number of residents in the top 10% of the world’s wealth. That is according to the 2019 Global Wealth Report, put together by Credit Suisse Group. Many of China’s tycoons are at the cutting edge of e-commerce and digital payments. The number of Chinese ‘unicorns’ – privately-held start-ups valued at more than $1 billion – at 187, second only to the United States. In Forb’s China Rich List 2020, Alibaba’s cofounder Jack Ma saw his fortune rise 72% to $65.6 billion, Tencent CEO Ma Huateng, known as “Pony,” was worth $55.2 billion, up 53% from a year ago. Colin Huang, chairman of e-commerce site Pinduoduo, saw his estimated net worth soar 44% to $30.6 billion. Rival JD.com CEO Richard Liu’s fortune tripled to $20.3 billion.
  • IPOs were another fuel for fortunes, notably in tech and healthcare. No. 3 Zhong Shanshan is up a staggering $52 billion following the China IPO of Nongfu Spring, a bottled water business, and of Beijing Wantai Biological Pharmacy, a pharmaceuticals supplier.

Table 2: Distribution of adult population in China in 2019, by wealth range group

 

Where capital is being placed globally in 2019?

  • Worldwide, gross financial assets grew by 9.7% in 2019, clocking the strongest growth since 2005. This performance is nothing but astonishing given the fact that 2019 was marred by social unrest, escalating trade conflicts and an industrial recession. But as central banks reversed course and embarked on broad-based monetary easing, stock markets decoupled from fundamentals and soared by 25%, lifting financial assets in the process: The asset class of securities increased by a whopping 13.7% in 2019; never was growth faster in the 21st century.
  • The growth rates of the other two main asset classes were lower – but still impressive: Insurance and pensions reached a plus of 8.1%, mainly reflecting the rise of underlying assets, and bank deposits increased by 6.4%. In fact, all asset classes clocked growth significantly above their long term averages since the Great Financial Crisis (GFC). Another peculiarity of 2019: Through all the years, the regional growth league table used to be dominated by Emerging Markets. Not so in 2019. The regions that saw the fastest growth were by far the richest: North America and Oceania where the gross financial assets of households increased by a record 11.9% each. As a consequence, for the third year in a row, Emerging Markets were not able to outgrow their much richer peers. The catch-up process has stalled.
  • The HNW segment and the ultra HNW (UHNW) segment prospered the most. The retail segment invested, on average, only about 9% of their assets in equities and investment funds, with more than 80% going instead into cash and deposits and life insurance and pensions. That low rate of investment translated into lower rates of wealth growth for this segment.

Wealth Market Forecast for 2020

  • The global wealth market will decline by 7% in 2020 due to the coronavirus. The pandemic has forced worldwide markets into lockdown, which will result in severe economic downturn. HNW individuals will be hurt the most due to their appetite for riskier asset classes, which have experienced declines mirroring the 2007-09 recession. Returns from all asset classes will be low as stock markets have crashed, interest rates are nearing 0%, and emergency government support is reducing yields from other fixed-income products. Recovery is expected to be slow, and will differ from country to country. However, we do predict that 2021 will be the bounce back year, with the global retail savings and investments market set to increase by 10%.
  • Allianz’s house view is more positive. As Covid-19 plunged the world economy to its deepest recession in 100 years, central banks and fiscal authorities around the world fired up unprecedented monetary and fiscal bazookas, shielding households and their financial assets from the consequences of a world in disarray. Allianz estimates that private households have been able to recoup their losses of the first quarter and recorded a slight 1.5% increase in global financial assets by the end of the second quarter 2020 as bank deposits, fueled by generous public support schemes and precautionary savings, increased by a whopping 7.0%. Very likely, private households’ financial assets can end 2020, the year of the pandemic, in the black.

How are the institutions (banks, fund managers, securities brokers and even insurance players) meeting the most fundamental needs of their customers?

The global economy has entered a period of significant uncertainty, with Covid-19 presenting a dramatically changed reality. High Net Worth wealth declining by 4 percent or $3.1 trillion in 2020.

Investors Landscape:

  • Investors’ top priorties:
    • ESG: Most investors still see financial returns as a top priority. Overall ESG mutual fund assets are set to grow at an 8.5% compound annual growth rate (CAGR) between 2017 and 2025, to reach US$2.08tn, which is a stronger growth rate than that of the overall industry. ESG is a key focus for many large pension and sovereign wealth funds, and it’s also increasingly important to younger generations.
    • Digital Solutions: Banking and wealth relationships in Asia-Pacific are in a period of change, particularly in China, where new, emerging digital methods and habits are being driven by fresh digital solutions. The percentage of clients expecting to transfer assets is expected to more than double in this region, from 15% over the last three years to 34% in the next three.

Investors’ investment channels:

  • Growth in using independent advisory channel: Historically, the wealthiest clients have made greater use of the independent advisory channel. The use of independent financial advisors is expected to rise rapidly, with an 18% increase in clients globally who expect to use independent advisors in the next three years, and a 14% increase for independent advisory firms.
  • Growth in using FinTech solutions:It is expected to increase from 38% today to 45% in the next three years, with 35% growth expected among mass affluent clients (28% today to 38% expecting to use) and 41% growth among HNW clients (29% today to 41% expecting to use).

Investors’ concerns about Asset Management:

  • Overcharged fees: 45% of clients do not trust their wealth manager or advisor to charge them fairly. Satisfaction is lowest among the youngest clients and among more knowledgeable clients. Wealthier clients are also more troubled about pricing, particularly regarding asset-based fees that can rise with wealth levels without a proportionate change in service. The emergence of less expensive alternatives, such as FinTech and passive investment options, is causing clients to question fees at a growing rate.
  • More clarity and simplicity: Only 56% of clients fully understand the fees they pay. Fee awareness is lowest for older clients and for clients with low levels of wealth or investment knowledge.
  • Demanding alternative pricing models: Dissatisfaction with payment methods increases with wealth levels, where percent-of-asset pricing models can amplify the size of fees. Younger clients also have a greater desire for change as they are accustomed to clear, simple and predictable purchase terms for everything from taxi rides to lending products: 6 out of 10 millennials indicate a desire for a different type of payment method than they are currently using.

Wealth Managers’ opportunities in a changing environment:

  • Adapt to the new normal: Wealth Managers must move quickly to design an omni-channel advice delivery model and accelerate their digitization efforts.
  • Defend business economics: Wealth Managers must improve their approaches to cost management to deliver positive operating leverage. Efficiency plays can reduce average industry cost income ratios by up to 12 percentage points through tactical cost cuts, streamlined group service delivery and transforming the operating model.
  • Consolidate share and drive growth: Wealth Managers must develop differentiated propositions to protect and grow their revenue base. Wealth Managers should significantly expand their private markets offerings to recapture UHNW wallet lost to disintermediation over previous years. Wealth Managers should consider developing digital assets offerings to differentiate their proposition and to attract a potentially high-value client segment.

The wealth gap between rich and poor countries has widened again. In 2000, net financial assets per capita were 87 times higher on average in the Advanced Economies than in the Emerging Markets; by 2016 this ratio had fallen to 19. Since then, it has risen again to 22 (2019). This reversal of the catching-up process is widespread: for the first time, the number of members of the global wealth middle class has fallen significantly: from just over 1 billion people in 2018 to just under 800 million people in 2019. Looking at the development since the turn of the century, however, the rise of Emerging Markets remains impressive. Adjusted for population growth, the global middle wealth class grew by almost 50% and the high wealth class by 30% – while the lower wealth class declined by almost 10%. Despite this progress, the world remains a very unequal place. The richest 10% worldwide – 520 million people in the countries in scope with average net financial assets of EUR 240,000 – together own roughly 84% of total net financial assets in 2019; among them, the richest 1% – with average net financial assets of above EUR 1.2 million – own almost 44%. The development since the turn of the millennium is striking: While the share of the richest decile has fallen by seven percentage points, that of the richest percentile has increased by three percentage points. So the superrich do indeed seem to be moving further and further away from the rest of society.

Interviewee Background

     Adam Khoo is the Executive Chairman and Chief Master Trainer of Adam Khoo Learning Technologies Group Pte Ltd, and director of seven other private companies. He is currently a member of the Singapore Chapter of the Young President's Organization (YPO). His business interests include advertising, conference events management, pre-school education, corporate training and learning centres. Adam Khoo Learning Technologies Group is one of Asia’s largest private educational institutions which runs educational seminars for over 80,000 people annually in 7 countries.

Khoo was introduced to stocks and shares by being given share certificates of Singapore and Malaysian listed companies by his grandfather since he was 15. He had lost nearly $30,000 at the beginning of investing at stock markets and realised stocks that generate consistent profits tend to obey certain criteria. Khoo then started to buy stocks which were sold at low prices during the economic depression in 1998-1999 and achieved a high profit on these investments. He continued to invest in companies stocks at low prices in the dotcom bubble burst of 2002 and the financial crisis in 2009 and made significant gains. Khoo set up the Wealth Academy Mentorship Programme to help people invest.

Khoo is a conservative and long-term investor goes for investments with low risk and high returns, favouring cash-rich companies with low debts and the potential to consistently increase their earnings. He prefers investing in stocks and options, using a variety of investing strategies including momentum and value investing.

Khoo’s comments on investments:

  • Invest early to use less capital and get more returns.
  • Invest with a logical set of pre-determined buy and sell rules to guide investment decisions.
  • Choose a reliable investment system and stick with the system rules, do not invest based on experts’ predictions as no people or computer can predict the trend accurately.
  • Avoid investments which take a long time to break even and instead, seek for other investment opportunities.
  • Making money when the stock market is going down because stock prices drop faster than it rises and it’s quicker to earn profits in a down-trending market.

People who had attended Khoo’s camps commented on his program:

“Then there was the infamous crying session. They turned off all the lights, told us to close our eyes and started to speak to us in a low, hushed tone. They told us to imagine going home one day only to realise that our parents were dead, and tried to make us feel like we were unfilial and ungrateful. I guess their end goal was to guilt-trip us into working hard in case their parlour tricks didn’t work.”

Negative comments on Khoo

“Adam Khoo is a walking bundle of contradictions and a man who sells the transformative potential of self-belief, coupled with the tools to make those beliefs materialise.” He believes that it’s more valuable to teach people how to become better versions of themselves, and still teaches them about investing instead because it’s what the economics demand. He builds a name teaching kids how to do well in school, and still believes grades aren’t important. He believes grades aren’t important but also that they are, because it’s good to have choices. He believes that money doesn’t make you happy, but derives immense satisfaction from teaching people how to make more of it. He attains every conventional marker of success, only to realise that he really cares more about doing what he loves, which is helping other people attain conventional markers of success.

Diary of Activities