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Momentum/UNISA Household Net Wealth Index – South Africans substantially poorer on paper

South African households’ real net wealth declined by a staggering R237 billion in the third quarter of 2019, according to the Momentum/UNISA Household Net Wealth Index. In a CNBC Africa interview, Johann van Tonder, Researcher & Economist at Momentum, attributes the decline to the result of geo-economical events and the depressed economy in South Africa.

South Africans can blame this on international events such as the trade war between the USA and China, fears of an economic recession in the USA and international terrorism attacks, as much as domestic events such as Eskom, state capture and a weak economy for losing a lot of their wealth during the third quarter of 2019 (Q3 2019).

According to van Tonder, wealth is a more important measure than income in that it speaks directly to a household’s standard of living. Wealth, as Momentum measures it, is a household’s total assets less its debt – and is not a measure of household income and expenditure. The report looks at whether South African households are using their income to build assets and pay debts, and how they are managing it. “The more wealth we’ve got, the better the livings standard, and the better the living standard, the more we can contribute to job growth and the economy,” van Tonder mentions. He further states that our wealth should be double what it currently is. “The only way we can do it is if we grow our investments, increase job creation, decrease unemployment and for more people to participate in the economy.” Currently around only five million South Africans currently make any contribution to pension and retirement funds – which means when tough times hit (as they are in South Africa at the moment), the vast majority of the country suffers as a result.

This of course impacts directly on financial advisers in terms of retention of business, as we have learnt over the years.

Unpacking the figures at hand

The real value of a household’s net wealth is the real value of its assets minus the real value of liabilities, where the real value of household net wealth, liabilities and assets is the current value minus the impact of consumer price inflation.

Household assets mostly consist of the combined values of their savings in pension and retirement instruments, financial investments and residential properties, while liabilities comprise their outstanding credit (including housing, vehicle and personal loans as well as credit card debt) and other debts (such as outstanding municipal accounts).

Momentum/Unisa estimates that the real net wealth of households declined by R237.0 billion between Q2 2019 and Q3 2019 to R6 966.7 billion in Q3 2019. Compared to a year ago (Q3 2018) the decline was R133.7 billion. The decline can be ascribed to a decline in the real value of household assets which exceeded the decline in the real value of their outstanding liabilities. When expressed as a percentage of gross household income, the ratio of household net wealth declined from 276.0% in Q2 2019 to 266.7% in Q3 2019.
The real value of household assets decreased by R240.9 billion between Q2 2019 and Q3 2019 to R8 381.9 billion, despite households increasing their savings to pension funds and retirement annuities. The decrease was caused by declines in the real values of both financial and residential assets. Several international events (outlined above) drove the decline in the real value of financial assets.
The real value of households’ outstanding liabilities decreased by R3.9 billion to R1 415.2 billion in Q3 2019 (from Q2 2019). However, it was R20.6 billion higher than the year before.

Outlook for the fourth quarter of 2019

Preliminary estimates for Q4 2019 point to a recovery in the value of households’ financial assets. Coupled with the reasonable performance of household wealth during the first half of 2019, this suggests that households will end 2019 wealthier when compared to 2018.

It seems that the future will furthermore be impacted by more economic restraints and international events.

In a FIN24 article today, Sanisha Packirisamy, an economist at Momentum Investments notes that “a dent in global risk appetite caused by the coronavirus left the rand the worst performing currency against the dollar in January. The local currency weakened by 6.7% against the greenback in the first month of the year, by 5.8% against the euro and by 6.3% against the pound.” “Virus fears have rattled markets, sending flows in the direction of safe haven assets, leaving riskier assets on the back foot,” she said.

Click here to download the Momentum/UNISA Household Net Wealth Index for Quarter 3/2019.

Click here to watch the interview with Johann van Tonder, Researcher & Economist at Momentum.

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