The wealth market in Belgium has experienced a rocky road in 2016. The ripple effect of the March terrorist attack paired with a volatile stock market has put the country into recovery mode. PBI digs deeper into a recent GlobalData report
Belgium’s wealth market is dominated by risk-averse investors. A volatile stock market, paired with a terrorist attack, has made wealthy investors notably more conservative in their investment outlook. The majority of assets are allocated in deposits, but mutual funds have experienced fast growth thanks to consistent investments in balanced and fixed income strategies.
According to GlobalData research, Belgian deposits account for over 53% of the savings and investments market. However, mutual funds are forecast to have the highest growth during 2016–20. Figures show that mutual funds are growing in popularity, accounting for 27.7% of total asset allocations. This can be attributed to the large allocations of these funds in less risky assets such as bonds, money market funds, and balanced funds – a strategy that reduces their volatility and makes them a lot more attractive.
High net worth individuals (HNWI) allocate over 12% of their investable assets outside traditional investments. Hedge funds, real estate investment trusts (REITs), and private equity funds constitute the bulk of investments outside traditional asset classes.
Belgian HNW investors offshore almost a fifth of their total investments, preferring to stay close to home, with Luxembourg alone absorbing 40% of total HNW offshore bookings.
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By GlobalDataAccess to a better range of investments is the major driver for offshore investments in Belgium, as tax efficiency has lost its importance due to international regulations on automatic exchange of information.
After a slowdown in 2016, equities holdings are expected to grow slowly but steadily up to 2020, registering a compound annual growth rate (CAGR) of 4%. However, bond holdings recorded a decrease of -12.9% in 2015 and are forecast to remain on a negative trend throughout 2016–20.
According to GlobalData, the Belgian wealth market experienced a boost in 2015, recording annual growth of 5.10%. However, 2016 experienced a slowdown, and forecasts for 2016–20 suggest the Belgian wealth market will start off quite slowly. The terrorist attacks of March 2016 strongly affected the tourism and restaurant sectors, whilst fiscal consolidation has put a brake to economic growth as the government aims to reduce the fiscal deficit by 2018. However, the economic growth of the country’s main trading partners (the US and Europe) will support exports and have beneficial effects on Belgian wealth growth, which is set to expand at a CAGR of 3.73% over the forecast period.
At present, mass affluent individuals represent 36.86% of the total population and HNWIs represent 0.72% of the market, but together they hold 90.54% of total Belgium liquid assets. Between 2016 and 2020 the number of affluent individuals is forecast to record an average annual growth rate of 4.61%, while liquid assets held by affluent individuals are expected to record a CAGR of 3.73%.
HNW investments
Belgian HNWIs allocate more than 12% of their investable assets outside traditional investments, mostly in hedge funds. Their offshore allocation is almost a fifth of their total investments, in line with that of their European neighbours, driven mainly by a wider range of investments offered abroad. Although personal income tax rates are still up to 50% for high income bands, tax efficiency has been losing its importance as an offshore driver due to new European and international regulations.
The majority of Belgian offshore booking is performed "locally" within the region, with Luxembourg, Switzerland, and France absorbing the greatest proportion. Luxembourg's role as the leading centre for UCITS means it holds the top spot, absorbing 40% of total bookings, while it is also used by Belgian HNW investors for their offshore investments in mutual funds.
Switzerland remains a popular booking centre for Belgian investors, but in the future this may be affected by changing preferences. In order to be able to maintain its presence in the market, Switzerland has to change the focus of its products, concentrating more on offering diversification rather than tax benefits or anonymity.
