Coronavirus To Wipe $3.1 Trillion Off High Net Worth Wealth In 2020, Report Says

The super-rich might have to put their luxury yacht orders on hold with the coronavirus crisis set to wipe $3.1 trillion off global high net worth (HNW) wealth in 2020.

The financial impact of Covid-19 will see wealthy individuals’ fortunes fall by 4% this year, ending a decade of consistent annual growth, according to a new report co-written by Morgan Stanley

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and Oliver Wyman.

The report says the effects will be lasting, with future growth rates sluggish in each of the three future scenarios it envisages.

Their “recession and rebound” base case sees a containment of the pandemic and fiscal stimulus underpinning a U-shaped economic recovery. In this scenario, HNW’s total worldwide assets would fall from $79 trillion to $76 trillion. But due to the lingering economic uncertainty, the predicted annual growth of HNW assets over the next five years would be cut from Oliver Wyman’s pre-Covid-19 forecast of 6% to 5.1%.

In the most optimistic case, a stronger short-term recovery in asset prices would see HNW wealth actually close out 2020 with a marginal 0.9% increase to $80 trillion. However, annualized growth over the next five years “sees only modest upside to our base case” at 5.4% in this scenario.

In the pessimistic bear model, based on a further “significant downturn,” HNW wealth would slump by 10.2%, or $8 trillion, to $71 trillion. This suggests that the risks are more heavily skewed to the downside and the effects would be longer-lasting too. The projected annual asset growth out to 2024 averages just 1% in this scenario.

“This would imply a four-year horizon before global HNW wealth returns to 2019 levels,” the report said.

It’s been a week for big predictions. The Organisation for Economic Co-operation and Development (OECD) said in its best case for the world economy, in which there is no second wave of Covid-19, global economic activity will slump by 6% in 2020. If there is a second wave, it warns this could steepen to 7.6%.

“Both scenarios are sobering, as economic activity does not and cannot return to normal under these circumstances,” said OECD chief economist Laurence Boone. “By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments.”

A two-speed recovery

The rate at which different countries’ economies will recover is set to vary markedly, with China and emerging markets to lead the way. 

The OECD forecasts that China’s GDP will fall by 2.7% in 2020 if it avoids a second Covid-19 outbreak, then rebound by 4.5% next year. South Korea, widely regarded as one of the countries that contained the virus most effectively, is only expected to shrink by 1.2%, before growing by 3.1% in 2021.  

This contrasts sharply with the West. The U.S. is projected to contract by 7.3%, before recovering 4.1% next year, with the eurozone set to decline by 9.1%, followed by 6.5% growth. The OECD believes the U.K. will be the worst hit of all, shrinking 11.5% this year, ahead of a 9% rise in 2021.

Morgan Stanley and Oliver Wyman expect this to be reflected in global HNW wealth flows over the next five years. They anticipate that wealth managers’ assets under management (AUM) will grow much more quickly outside of the traditional developed markets.

“As global wealth recovers from this lost year, we expect the AUM growth outlook to shift further away from developed markets. While industry AUM grew 7% annually in developed markets in the five years prior to Covid-19, we expect slowed growth of 3-4% annually in these markets,” said Kai Upadek, a partner at Oliver Wyman and a co-author of the report.

China will be the standout winner, with Oliver Wyman forecasting 12% wealth AUM growth over the next five years. Latin America is predicted to have the second-fastest-growing AUM at 8%, ahead of non-China Asia Pacific countries at 7%. This compares to just 4% in the U.S., and 3% in both Western Europe and Japan, reinforcing the belief that a new normal is upon us.