_Inside wealth – what are the risks facing future wealth creation?

Attitudes Survey

The Attitudes Survey forms the building blocks of The Wealth Report, providing valuable insight into the trends, motivations and attitudes of global ultra-high-net-worth individuals.

What risks are you watching out for?

James Wey

Head of Singapore and Southeast Asia, Wealth Management, JPMorgan Chase & Co

The biggest risks are typically the ones we do not see. If we know of it, we have thought about it and communicated to investors and clients. But often the things that cause disruption and risks come totally out of the blue – for example, Covid-19. No one expected supply chain disruptions to last this long or oil prices to remain so high in 2021. Then, just when borders around the world were beginning to open up and airline and travel stocks were rebounding, Omicron emerges and within a week borders shut like dominos.

The supply chain bottlenecks worldwide are a challenge and that has a ripple effect on investment. Products can’t move to Europe and the US for example – these are risks we are paying close attention to. Ever-tightening borders are also affecting supply chains around the world with seamen having to quarantine for a month before moving on. This has a big knock-on effect.

Pierre-Yves Lombard

Deputy Head Private Clients, Asia Ex-Japan, Lombard Odier

The main one is financial conditions. We think in 2022 there will be less central bank and government support. Rising rates is a natural part of the economic cycle. This is not a source of concern if done gradually, but if rates are raised aggressively this could be a drag for long duration assets.

China’s macro policy reforms – in technology, finance, education and real estate – are part of a broader trend to watch and we expect more in the run up to the Party Congress next November. We think these catch-up reforms may cause some short-term concerns, but longer term they are part of the healthy growth of the Asian corporate and innovation ecosystems.

David Bailin

Chief Investment Officer, Citi Global Wealth Management Investments

There are four major economic risks: the slowdown in China’s economy; the Federal Reserve tightening too quickly (which would be a mistake); a misjudgment of inflation (we think it is transitory); and the potentially destabilising Russian invasion of Ukraine, which would have a profound impact on oil markets and relations across Europe. We are also seeing the direction of travel towards more regulation, which will be meaningful in the realms of tech and climate.

Sheldon Halcrow

Executive Partner, Caleo Capital

The extent of the debt burden is still not understood. At what point do increasing interest rates pop the bubble of the global debt burden? Ongoing Covid disruption and lockdowns are particularly worrisome for the continent. The ones across Europe in late 2021 were more severe than anticipated and in South Africa the economy is so fragile it can’t afford or tolerate a full lockdown.

"Political risk is going to be much more significant in the years ahead" - Alexander Chartes

Alexander Chartes

Investment Director at Ruffer LLP

Most markets aren’t priced for higher inflation volatility over the medium to long term. We will see tightening in monetary policy this year, although at different paces globally which will likely lead to market and exchange rate volatility. However, interest rates will not go back to pre-financial crisis levels due to record indebtedness.

Political risk is going to be much more significant in the years ahead. China is a particular concern, not only for its increasingly fraught Cold War II dynamic with the US (think Taiwan, etc), but also the attempt to shift its growth model away from excessive real estate development towards more consumption and next generation industries. Both are seismic changes for the world and will drive higher volatility.

Kunal Lakhani Director

Family Office & Major Family Groups, NAB

I believe we are in the late stages of a very long cycle and this needs to be taken into consideration when building portfolios. This cycle is incredibly hard to pick due to increased (dis)information; there is lot of noise around asset classes. Look for good management and product – long-term fundamentals should hold true. Try and remove the noise from your analysis.

Data is driving a lot more transparency. Because of the increase in inequality and the widening economic/social divide, there will be greater pressure on higher taxation for those with higher assets. We may see a shift to asset rather than income taxing in more OECD countries. We have seen more philanthropic endeavours, with those that can acting directly in the areas they want to support rather than relying on tax dollars to impact this.

Alexandre Tavazzi

Global Strategist & Head of the CIO Office, Pictet Wealth Management

In Asia there are big question marks over the mainland Chinese property market. Housing stock accounts for 7% of personal consumption compared with 2%–3% in the US, according to Empirical Research Partners, so if prices start to go down this will have a big effect on Chinese consumption and that could be a big drag worldwide.

Can Asian nations continue to have a zero Covid policy? Many will have a completely different economic path in 2022. The initial part of the recovery was based on manufacturing. The second leg is services as economies reopen and this is where you have the big bulk of 2022 growth. If lockdowns continue, the recovery scenario is at risk with the prospect of growth going down as inflation rises. This will compress equity valuation and bring a market correction.

Caspar Rock

Chief Investment Officer, Cazenove Capital

A pickup in service inflation would be a concern but has been relatively muted in 2021. It is not so binary as everyone says – the choice is not as stark as either permanent or transitory. There are elements of inflation being depressed by globalisation and a move to reshoring could see cost bases increase. Some elements are cyclical in nature, though. Looking at yield curves, there is faith in financial authorities and their ability to tackle inflation.

From a tax point of view, levelling up or common prosperity are not too different as political aspirations, but the delivery is different. Both are trying to address inequality and tax policy is an instrument. Pandemic deficits need to be filled and other holes may emerge. In the UK, with EV penetration on the up and the phasing out of petrol and diesel fuels, the Exchequer will lose £30 billion in fuel duty revenue so that gap will need to be filled, too.

"Pandemic deficits need to be filled and other holes may emerge" - Caspar Rock

Piers Master

Partner and Head of Private Wealth, Charles Russell Speechlys

Tax is a traditional worry and we are now seeing the possibility of taxes being extended to jurisdictions that traditionally haven’t had them. The Middle East, for example, is mulling over the introduction of direct taxation in the future. The world has spent eye-wateringly large sums throughout the pandemic and borrowed to fund this. Countries have books to balance and will look to raise taxes. This does not mean raising top tax rates, as UHNWIs are mobile and if rates go too high they will leave. There is competition for UHNWIs and the investment and employment capital they bring.

Privacy is another concern. UHNWIs worry about there being too much information about them and their families. There is a general acceptance that information should be available to law enforcers and government agencies, but not the public. There are concerns over how the information will be used, and clients are looking more than ever at how to structure their wealth to protect their families.