Here’s Another Reason Why Wall Street Loves China

Forbes Finance 3 weeks ago
Shopping Inside A Luk Fook Holdings Ltd. Jewelry Store Ahead Of GDP Numbers
Customers browse a gold necklace inside a Lukfook Jewellery store in Macau, China. for the first ... [+] time, China has more people in the global top 10% of earners than the U.S. Photographer: Brent Lewin/Bloomberg

Read Bloomberg on any given day and you will figure it out, Wall Street absolutely loves China.

It’s not because they are all a bunch of free traders, either, and for some reason think a trade war is bad for a free trade scenario that never existed in the first place. Their interest in China is raw, and basic. There is money to be made there. Lots of money, in fact. This is increasingly true as Beijing opens its economy to foreign firms and investors.

Not only is the Forbes billionaire list teeming with one Chinese business owner after another, year after year, but it is now home to more millionaires than we have here in the United States. And that means more consumers, more investors there than here.

When the NBA says that they are losing money because of the China imbroglio caused by one Tweet in favor of Hong Kong, they are not alone. Corporate America is loyal to China to some extent because they have built their business models based on it. Investors love it because China is getting rich, which is good for the market, good for consumer-focused companies and financial services that cater to them.

China Establishes Rules On Margin Trading, Stock Futures And Short Selling
China would have had even more millionaires if the stock market did as well as it has done in the ... [+] U.S. Photographer: Qilai Shen/Bloomberg

China now has more members of the global top 10% (100 million) of high net worth individuals than the United States (99 million) for the first time, according to Credit Suisse Research Institute’s Global Wealth Report, published this week.

High net worth constitutes people earning a wide range, from at least $100,000 to as much as $1 million. This wealth range accounts for 38.9% of the total world’s wealth. Those worth over $1 million account for 43.9% of the world’s wealth, according to the report.

Global wealth creation has centered around China and the United States for much of the past 10 years. In 2018, the United States extended its unbroken spell of wealth gains, which began after the global financial crisis in 2008. The U.S. accounts for 40% of dollar millionaires worldwide and for 40% of those in the top 1% of global wealth holders.

Wealth in China started from a much lower base and grew quickly when its economy began opening up to U.S. manufacturing in the 1970s. Things really kicked off when China joined the World Trade Organization in 2001.

China’s economy boomed shortly after and has been on a tear since, with marked slowdowns only in the last five years. Despite slower growth, wealth creation continues apace. As a result, China has replaced Europe as the principal source of global wealth growth and replaced Japan as the country with the second-largest number of millionaires after the U.S. This year, it finally surpassed the U.S. thanks in part to its large population size.

The U.S. has a greater percentage of wealthy individuals in its overall population than China has.

Financial Markets Wall Street
China? I want it. American investors love the long-term growth story in China. Despite a slowing ... [+] economy, the consumer class is expanding and China's share of high net worth individuals keeps companies there happy. (AP Photo/Richard Drew, File)

Since 2000, total household wealth in China has risen from $3.7 trillion to $63.8 trillion, a multiple of more than 17 times. China’s wealth accumulation per capita is more than three times the rate of most other nations.

Still, the U.S. is holding its own against this rising economic power. It has a high fraction of adults with wealth above $100,000 compared to the rest of the world. The percentage of Americans with wealth at even higher levels than that is even more striking, Credit Suisse report authors wrote.

The U.S. has the most members of the top 1% global wealth group, and currently accounts for 40% of the world’s millionaires. The number of ultra high net worth individuals with wealth above $50 million is about four times that of No. 2 China.

Wealth per adult in the U.S. is 45% above the 2006 level, according to the report. However, thanks to slower growth in the stock market this past year, and a leveling off of real estate prices, average wealth per American adult rose 3% in the 12 months to mid-2019, compared to an average annual increase of 5% in the previous five years.

American investors have gotten wealthier over the last five years thanks to an ever-increasing stock market. Those with money in the market either through an online brokerage account or an IRA saw investments in the S&P 500 rise 51.7% in the last five years. The Nasdaq rose 80.42%.

China investors have not faired as well. If they had, they might have added to their millionaire list above and beyond what they have this year so far.

China’s CSI-300 Index is up 39.15% in the last five years, while the MSCI China rose 20.7% and the Hang Seng is up around 9%, much less than the equity gains seen in the U.S.

China continues to evolve.

It has gone from a go-to spot for cheaper labor and general manufacturing, to a must-have nation for multinational corporations looking to expand their brands’ global reach.

Wall Street wants to be there, either through big New York banks serving Chinese investors in mainland China, like Goldman Sachs is doing now, or bringing American investment capital into Chinese companies in hopes to capture some of that China wealth for their investors.


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