Chart of the Month

    Global Wealth is Moving East

The chart above graphically outlines the shift in aggregate family wealth from the OECD countries to China and other Asian countries. It also shows the shift in relative population levels for each country or region. In defining wealth, one is looking at the aggregate wealth in a specified region or country. This change is represented by the gold lines in the table above. The blue lines represent the change of population for each country or region.

This shift in wealth is a natural extension of the shift in economic activity from “West” to “East”. It is interesting to note that the largest loser in the wealth race is Japan, who amongst other things has been displaced as the world’s second largest economy by China. The USA is next, followed by Western Europe.

China’s growth in wealth is not surprising as they have been the fastest growing economy in the past twenty years. What is surprising is the loss of relative wealth from the USA which had an increasing share of the global population over this period. Africa has clearly been a large loser as they have had significant growth in population but little growth in wealth.

The history is interesting but from an investment point-of-view what is more relevant is “will this trend continue?”.  Clearly the answer to this question will be based on several factors:

      • How quickly can China grow its local consumer market?
      • Will the Covid19 pandemic affect the attitude of OECD manufacturers towards their existing supply chains?
      • Will Chinese wages increase to a point that manufacturers shift their factories to low wage environments in India, the rest of Asia, Africa or Latin America?
      • Will the “Black Lives Matter” (“BLM”) movement migrate from North America and Western Europe into Africa?

Our view of this situation is that, over time, the impact of the “just in time” supply chains that currently depend on Chinese manufacturing will remain in place. The costs of duplicating supply chains will prove to be too high to maintain and only government requirements for local manufacture will create local supply chains in specific products.

However, Chinese labour will become too expensive and manufacturers will seek out cheaper labour in the rest of Asia and possibly in South America and Africa. We have already witnessed some of this as several  China’s manufacturing has shifted to lower cost regions and may move to their trading partners in the New Silk Road.  This would augment the trend as the Chinese economy will become more services driven as the population is aging and wages are rising.

India seems to be the next large economy that will benefit from a shift in global GDP and Africa may follow if African countries manage to equip their exploding populations with a sound education. It is noteworthy to reflect that there are senior business and political leaders looking for a way to connect the BLM campaign to relief measures for Africa.

In summary, we believe that the next major shift in wealth should be from China to India, however the rise of India has been long expected but the country struggles to live up to its potential, casting some doubt on the timing of such a shift.

Disclaimer:  Please note that the publication is designed to provide general information only.  It reflects the thoughts and opinions of Logan Wealth Management and should not be construed as financial advice, nor should the information be considered a substitute for personal advice.  Information used in this publication has been gathered from sources believed to be reliable. Logan Wealth Management is not responsible for and assumes no liabilities or responsibility for any loss or damages suffered as a result of use or misuse of, or reliance on the information or content of this publication. Please consult your financial adviser to determine whether the information is applicable to your personal situation.