- The global wealth scale continues to rise, but the asset structure shows a severe imbalance. The report indicates that by 2025, the total global balance sheet will reach $1.8 trillion, with household wealth reaching $570 trillion, growing at an annual rate of 7.3%.
- The quality of wealth growth faces severe challenges, with only about 20% of the increase coming from real capital accumulation, while nearly 60% of the growth relies on asset price increases above the inflation rate, inflating paper wealth valuations and posing risks to financial stability.
- The divergence among the three major economies of the US, Europe, and China is intensifying. The US faces risks from fiscal expansion and high valuations, Europe is in long-term stagnation, and China is undergoing real estate market adjustments and debt structure transformation.
Valuation Inflation Masks Insufficient Real Capital Accumulation
A recent McKinsey report points out that the expansion of the global balance sheet is mainly driven by asset price premiums rather than improvements in real productivity. By 2025, global household wealth will rise to $570 trillion, with a year-on-year increase of 7.3%. However, in the total global balance sheet of $1.8 trillion, the contribution rate of real capital formation is only 20%, with nearly 60% of the increase coming from asset valuation expansion beyond inflation. If the market faces a price correction, the evaporation of virtual wealth could cause an unexpected impact on the liquidity of the financial system.
Structural Divergence Among the US, Europe, and China
The policy paths and fundamentals of major global economies are diverging rapidly. The US maintains growth with corporate profits as a share of GDP doubling since 2000, but government debt has exceeded 120% of GDP, heavily relying on promises of AI productivity transformation. Europe is trapped in low growth stagnation due to insufficient investment momentum and high savings rates. Meanwhile, China continues to deleverage its balance sheet, with real estate market adjustments and high debt levels prompting a policy shift towards domestic consumption-driven growth.
Four Scenarios for Balance Sheet Rebalancing
The rebalancing of the global wealth structure will face four potential scenarios. The ideal path relies on accelerated productivity to absorb high valuations. The second path involves long-term structural inflation diluting the real value of debt. The third scenario presents long-term economic stagnation under low interest rates. The extreme scenario involves a sharp correction in asset prices leading to forced resets. Market pricing will depend on the sustainability of high valuations in the US, the recovery of investment in Europe, and the pace of China's consumption transformation.
Market Risk Appetite and Rebalancing Pricing Logic
Under the pressure of the global balance sheet, cross-asset volatility may be reassessed. If the Federal Reserve's interest rate policy resonates with high fiscal deficits, the US dollar and Treasury yield curve will face structural reshaping. At the same time, the insufficient support of the real economy for paper wealth means that the resilience of equity markets and credit spreads to macroeconomic shocks is weakening. Investors need to defensively allocate assets in response to the linkage effects under different rebalancing scenarios.
