Private financial assets fell by 0.1% in 2018, the first decline since 2008

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Allianz Wealth Report | Rising uncertainty took its toll on financial markets in 2018 – and households felt the brunt: Private financial assets fell by 0.1% in 2018, the first decline since 2008. Gross financial assets in the 53 countries we analyzed thus remained more or less flat at EUR 172.5 trillion. The decline in gross financial assets in 2018 was widespread, both emerging and advanced countries ended the year in the red. For emerging markets, it was the first time in this century, for advanced markets the third time since 2008 and 2002.

Convergence stalled

The global process of convergence, the closure of the gap between richer and poorer regions, seems to have come to a halt. In 2018 growth in gross financial assets in emerging markets was for the second year in a row below that of advanced markets and the share of emerging markets in global financial assets remained flat at around 18%. But as the growth gap between poorer and richer regions of the world still stands at an impressive 11 percentage points on average over the last two decades, it might be too early to rewrite the narrative of sustained catch-up. But economic belligerence has made the path to the rich world much more rocky for emerging markets.

Fresh savings at a record high

Total financial assets declined in 2018, but fresh savings set a new record. They increased by 22% to more than EUR 2,700 billion. Were it not for tumbling stock markets, this record purchase of financial assets would have resulted in asset growth of 2%. In other words: The decline in asset prices, mainly equities, cost the households around EUR 3,000 billion in 2018. The increase in the flow of funds was mainly driven by US households, who upped their fresh savings by a whopping 46% to EUR 1,800 billion; US savings thus accounted for two thirds of global savings in 2018. This was driven in large parts by the US tax reform bringing some windfall profits to US households – which were duly reinvested.

The price of low yields

The years of continuously falling yields have left a clear mark on savings behaviors: Savers are turning their backs on the asset class of insurance and pensions. Its share in total fresh savings has fallen from around 60% in the aftermath of the crisis to a mere 25% in 2018. At first glance, securities seemed to benefit from the low yield environment. Their share in total fresh savings increased by 2pp to 29% in 2018, the highest share on record.

This development, however, is entirely due to the situation in the US. Other savers are clearly more cautious: Be it Europe, Japan or Australia: Households were net sellers of securities in 2018. Bank deposits remained by far the most popular destination for fresh savings in 2018, for the eighth year in a row. This penchant for liquidity and safety costs savers dearly, however: Losses suffered by households as a result of inflation if they parked their savings in bank accounts are expected to have risen to almost EUR 600 billion in 2018.

As safe as a bank

Bank deposits were the best performing asset class in 2018: Rising inflows led to an increase in growth from 4.3% to 5.7%, on par with the average for the last decade. Securities, on the other hand, declined by 4.9% in 2018, the first drop in over a decade. The slump was, however, less pronounced than in 2008 (-22.3%) and 2002 (-6.5%). Growth in insurance and pensions disappointed, too: the 1.0% increase was the second weakest in this century. This meagre growth reflects in part lower inflows but also the weak performance of underlying assets.

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About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.