In the current low interest climate, households could further increase their propensity to invest their savings in the financial markets, either directly or indirectly, through mutual funds and life insurance companies, the Luxembourg Central Bank (BCL) has said. Photo: Christophe Lemaire/Maison Moderne (archives)

In the current low interest climate, households could further increase their propensity to invest their savings in the financial markets, either directly or indirectly, through mutual funds and life insurance companies, the Luxembourg Central Bank (BCL) has said. Photo: Christophe Lemaire/Maison Moderne (archives)

The Luxembourg Central Bank (BCL) has examined the financial assets of Luxembourg households: from 2010 to 2020, wealth nearly doubled, rising from €62.8bn to €110.03bn. That is 171.6% of national GDP. The average gross wealth per household reached €194,015 in 2020.

According to the Luxembourg Central Bank’s , “households in Luxembourg have a relatively high risk aversion profile, which is reflected in their high propensity to place their savings in bank deposits. However, in recent years, households have changed the structure of their financial investments in favour of riskier assets, investing more in equities, non-money market funds and unit-linked life insurance policies. In addition, the total amount of portfolio investments made indirectly through investment funds and life insurance companies has increased significantly in recent years, reaching almost 75% of all securities held at the end of the period.”

In other words, resident households have taken more of a frugal ant than a spendthrift grasshopper approach and favour similar, local financial products.

Parsimonious ants

Households in Luxembourg stand out from other eurozone countries by the relatively high weight of bank deposits in their financial portfolios. With an amount outstanding of €51.4bn at the end of 2020, the share of cash and deposits reached 46.7% of total gross financial wealth (+6% since 2010). The BCL said this level testifies to the “low risk appetite of households”, while agreeing that “the uncertainty generated by the financial crisis and, more recently, by the crisis linked to the pandemic” has played a role in this development.

Financial investments, worth €33.9bn, accounted for 30.8% of households' financial assets. Households have abandoned bonds in favour of shares.

“Investments made indirectly through financial intermediaries increased significantly to 22.9% of total financial assets at the end of the period, with €13.6bn and €11.5bn respectively in securities held through investment funds and life insurance companies”, the central bank reported.

“Unlisted shares and other stakes”, a category that mainly covers real estate abroad and private company shares, accounted for 17.1% of the total gross financial wealth of households, totalling €18.8bn.

Pension rights remained “for institutional reasons” marginal in the financial wealth of Luxembourg households and represented €3.66bn.

Finally, the “amount of other assets”, which includes loans granted by households and technical provisions for non-life insurance and call reserves under standard guarantees, amounted to €2.3bn at the end of 2020.

Financing the local economy

Also at the end of 2020, the stock of securities held by households in Luxembourg amounted to €13.3bn in bonds, €14.7bn in equities and €5.9bn in foreign investment fund shares.

The bond portfolio of households showed a domestic bias, totalling almost one-third of securities issued by Luxembourg issuers, mainly large international companies and banks in the financial centre. However, direct investments in shares, which represented €5.7bn at the end of 2020, were more oriented towards foreign markets--only 5.9% of securities issued by companies located in the grand duchy.

Investments made indirectly through investment funds and insurance companies contribute to a greater international diversification of the securities portfolio. However, the bond portfolio was still characterised by a strong regional bias, since 52.6% and 76.4% respectively of all debt securities held by households at the end of 2020 were issued by euro area residents and denominated in euros. The internationalisation of the portfolio was much more pronounced in terms of indirect holdings of equities, and particularly in terms of investments made through investment funds, with almost 75% of securities issued outside the euro area and denominated in foreign currency.

At the end of 2020, households in Luxembourg contributed €2.5bn to the financing of the national economy and €12.2billion to the financing of the euro area economy. At the end of 2020, the main countries of destination of investments were the United States (€5.9bn), France (€4.1) and Germany (€2.6bn).

Originally published in French by and translated for Delano