South Africa is currently navigating a turbulent course of political, economic, and financial uncertainties that are seriously undermining future prospects. Low economic growth, high inflation, currency devaluation, and the threat of a further downgrade of the country's national credit rating to "junk" are hampering the South African wealth market. Political tensions are increasing investor nerves, making it a vital time for wealth managers to guide their clients through rough waters.
- Affluent individuals account for just 0.8% of the South African population but hold over 90% of liquid assets. This reflects the high levels of wealth inequality, with the country consistently ranked as the most unequal in the world.
- The macro environment will hamper growth in the savings and investments market, which is nevertheless still forecast to grow by 5.4% a year to 2020.
- In spite of high inflation and taxation reducing the appeal of deposits, this class will be the major driver of growth to 2020. This will be the result of gradually increasing savings levels and retail investors seeking safe havens in volatile times.
- South African HNW individuals hold 26.5% of their wealth outside of traditional liquid allocations, with a fairly even split between property and alternative investments (hedge funds in particular).
- Offshore investments account for 32.2% of HNW portfolios, significantly above the global average, which is primarily driven by the desire for geographic diversification.
- Offshore investments will remain a critical part of HNW portfolios given current political, investment grade, and currency concerns.
"Wealth in South Africa: Sizing the Market Opportunity 2016" analyzes the South African wealth and retail savings and investments markets, with a focus on the HNW segment.
The report is based on proprietary datasets.
Specifically the report:
- Sizes the affluent market (both by number of individuals and the value of their liquid assets) using our proprietary datasets.
- Analyzes which asset classes are favored by South African investors and how their preferences impact the growth of the total savings and investments market.
- Examines HNW clients' attitudes towards non-liquid investments such as property and commodities.
- Identifies key drivers and booking centers for offshore investments.
Reasons to Buy
- Benchmark your share of the South African wealth market against the current market size.
- Forecast your future growth prospects using our projections for the market to 2020.
- Identify your most promising client segment by analyzing penetration of affluent individuals in South Africa.
- Evaluate your HNW proposition by understanding how the South African tax system will impact HNW clients.
- Review your offshore strategy by learning HNW motivations for offshore investments and their preferred booking centers.
1. Executive Summary
South Africa's volatile economic, political, and financial environment will hamper market growth
Critical success factors
2. Sizing And Forecasting The South African Wealth Market
The onshore wealth market is extremely concentrated at the top end
Affluent individuals account for just 0.8% of South Africa's population
In South Africa affluent individuals hold over 90% of liquid assets
3. Drivers of Growth in the South African Wealth Market
Growth in South Africa's retail savings and investments market will slow
Economic and political difficulties will hamper growth
Going forward growth will be driven by deposits
Deposits will benefit from increasing savings and investors seeking safe havens
Savings will gradually increase
High inflation undermines the appeal of deposits
Equities and mutual funds have experienced extreme volatility
The volatility of the FTSE JSE Index has been exacerbated by political tensions
The popularity of mutual funds and equities is unlikely to be dented, although more muted growth is forecast to 2020
Retail bonds will remain a marginal asset class
4. HNW Investment Preferences
South African HNW individuals allocate over a quarter of their portfolios to alternative and property investments
Hedge funds are a popular alternative investment for South African HNWs
Property accounts for over 40% of non-traditional liquid investments
South African HNWs hold almost a third of investments offshore
Geographic diversification and political instability are the biggest drivers for offshore investments
Offshore wealth is predominantly held in the UK
The South African government faces an ongoing battle with offshore tax evasion
Personal tax rates are high, but are not a key driver of offshore investment
Abbreviations and acronyms
2016 Global Wealth Managers Survey
Global Wealth Model methodology
Global Retail Investments Analytics methodology
List of Tables
Table 1: Personal income tax rates, 2016
Table 2: Adult population (000s) segmented by asset band, 2011-15
Table 3: Adult population (000s) segmented by asset band, 2016f-20f
Table 4: Onshore liquid assets ($bn) segmented by asset band, South Africa 2011-15
Table 5: Onshore liquid assets ($bn) segmented by asset band, South Africa 2016f-20f
Table 6: Rand to US dollar exchange rate, December 31, 2014 and December 31, 2015
List of Figures
Figure 1: Affluent individuals account for just 0.8% of South Africa's population
Figure 2: Affluent South Africans hold 92% of liquid assets
Figure 3: The retail savings and investments market is forecast to display slower growth to 2020
Figure 4: Deposits are forecast to increase their share of the retail savings and investments market to 2020
Figure 5: Slower growth is forecast across all asset classes, with deposits the main driver of growth
Figure 6: Retail deposits will track nominal wages and outperform GDP growth to 2020
Figure 7: Stock market performance has been highly volatile in South Africa
Figure 8: Mutual funds and equities have been extremely volatile, but overall lower growth is forecast to 2020
Figure 9: Bond growth will track above GDP to 2020
Figure 10: Over a quarter of South African HNW investments were held outside of traditional liquid assets in 2016
Figure 11: South African HNW investors hold almost a third of their portfolios offshore, particularly in equities
Figure 12: Geographic diversification and political instability are the key drivers for offshore investments among South African HNWs
Figure 13: The UK accounts for 45% of South African HNW offshore assets in 2016
Figure 14: South Africa's global TIEAs and DTCs, September 2016