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Chart of the Week

Chart: The Downfall of Canada’s Largest Alternative Mortgage Lender

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Chart: The Downfall of Canada's Largest Alternative Mortgage Lender

The Downfall of Home Capital

And what it could mean to global investors

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.

If history does indeed rhyme, then the saga of Canada’s largest alternative mortgage lender could be the opening act in a Shakespearean financial tragedy.

Home Capital Group, the country’s leader in subprime residential loans, is finally on the ropes after years of speculation. The company was the most-shorted stock in Canada at various points in 2015, and it also took the crown as the most-shorted stock in North America for durations of 2016.

Those bears are likely buying the drinks this weekend. Home Capital’s stock has fallen 89% from its peak in August 2014, and over that time the company has shed over $3.4 billion of market capitalization. The biggest portion of the fall came just weeks ago, when depositors withdrew nearly $600 million in cash from Home Capital Group’s balance sheet.

In more recent news: the company has also had its credit rating downgraded, opened an emergency credit facility of $2 billion with sky-high interest rates, and shook up its board as part of a “governance renewal”. Oh, and all of this is happening while regulators pursue allegations that the company intentionally misled investors.

Part of a Bigger Narrative

It’s no secret that Canada’s housing and mortgage sector has been precarious for some time.

While the country’s banks and real estate sector largely shook off the effects of the Financial Crisis, the market has been bubbly and speculative since then. We previously noted the insanity of Vancouver’s real estate market, and even The Economist was calling Canada the most overvalued housing market in the world years ago.

Not much has changed. Governments have tried to step in with foreign buyer taxes, but it’s not enough to stop skyrocketing prices in Toronto. At the same time, Vancouver is also rebounding from recent government interventions to try and cool off the local market. In fact, prices there are up 5% in just three months.

While Home Capital Group is a relatively small fish in the Canadian mortgage pond, the saga has also prompted global investors to think deeper about Canadian housing. Are the issues with Home Capital a one-off, or are they systemic to the market as a whole? Is there a possibility of widespread contagion?

Gut Check Time

Markets are divided on the above issues for now. Some analysts are calling Home Capital a speculative buying opportunity, while others see it as a potential trigger for the puncture of the Canadian housing bubble.

Contagion has already been spreading, especially to other lenders such as Equitable Group – a company with a similar business model, that has seen shares fall 34% over the last month.

Home Capital contagion has spread to the entire mortgage market, in particular alternative mortgage lenders. Our channel checks suggest [Equitable Group’s] deposit-gathering capabilities will be impaired.

Jaeme Gloyn, National Bank (April 27th, 2017)

At the same time, house prices continue to increase – and governments are doing everything in their power to cool them off without triggering a recession. It’s a financial tightrope act that will be watched closely by investors around the world.

If the Home Capital saga is indeed just the opening act of a Shakespearean financial tragedy, then the following act will also be one to watch.

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Chart of the Week

Which Countries Have the Most Wealth Per Capita?

How do the rankings of the world’s most affluent countries change when using different metrics to measure wealth per capita?

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Which Countries Have the Most Wealth Per Capita?

Our animated chart this week uses data from the ninth Credit Suisse Global Wealth report, which ranks countries by average wealth, calculated as gross assets per adult citizen.

While using such a metric certainly gives a quick snapshot of wealth per capita, it doesn’t necessarily show the complete picture.

Some argue, for example, that calculating the mean doesn’t factor in the gap between the richest and poorest in a population—also known as wealth inequality. For this reason, we’ve compared this number to median wealth for each country, providing a separate angle on which countries really have the most wealth per capita.

Mean or Median: Which Makes More Sense?

Below, we’ve visualized a hypothetical example of two groups of people, each earning various sums of money, to show how average (mean) and median calculations make a difference.

Mean vs Median Comparison

What can we observe in both datasets?

  • Total wealth: $2,000
  • Total people: 15 people
  • Average wealth: $2,000 ÷ 15 = $133

However, that’s where the similarities end. In the first group, wealth is distributed more evenly, with the disparity between the lowest-paid and highest-paid being $300. The median wealth for this group reaches $100, which is close to the average value. In the second group, this gap climbs to $495, and the median wealth drops sharply to only $30.

Scaling up this example to the true wealth of nations, we can see how the median wealth provides a more accurate picture of the typical adult, especially in societies that are less equal.

Let’s see how this shakes out when ranking the world’s most affluent countries.

Ranking Top Contenders on Wealth per Capita

When it comes to wealth per capita, it’s clear that Australia and Switzerland lead the pack. In fact, the data shows that both nations top the lists for both mean and median wealth.

However, both nations also have the highest absolute household debt-to-GDP ratios in the world: in 2018, Switzerland’s levels reached nearly 129%, while Australia followed behind at 120%.

Here is a full ranking of the top 20 countries by mean and median wealth:

RankCountryMean wealth per adultCountryMedian wealth per adult
#1🇨🇭 Switzerland$530,244🇦🇺 Australia$191,453
#2🇦🇺 Australia$411,060🇨🇭 Switzerland$183,339
#3🇺🇸 United States$403,974🇧🇪 Belgium$163,429
#4🇧🇪 Belgium$313,045🇳🇱 Netherlands$114,935
#5🇳🇴 Norway$291,103🇫🇷 France$106,827
#6🇳🇿 New Zealand$289,798🇨🇦 Canada$106,342
#7🇨🇦 Canada$288,263🇯🇵 Japan$103,861
#8🇩🇰 Denmark$286,712🇳🇿 New Zealand$98,613
#9🇸🇬 Singapore$283,118🇬🇧 United Kingdom$97,169
#10🇫🇷 France$280,580🇸🇬 Singapore$91,656
#11🇬🇧 United Kingdom$279,048🇪🇸 Spain$87,188
#12🇳🇱 Netherlands$253,205🇳🇴 Norway$80,054
#13🇸🇪 Sweden$249,765🇮🇹 Italy$79,239
#14🇭🇰 Hong Kong$244,672🇹🇼 Taiwan$78,177
#15🇮🇪 Ireland$232,952🇮🇪 Ireland$72,473
#16🇦🇹 Austria$231,368🇦🇹 Austria$70,074
#17🇯🇵 Japan$227,235🇰🇷 South Korea$65,463
#18🇮🇹 Italy$217,727🇺🇸 United States$61,667
#19🇩🇪 Germany$214,893🇩🇰 Denmark$60,999
#20🇹🇼 Taiwan$212,375🇭🇰 Hong Kong$58,905

The United States boasts 41% of the world’s millionaires, but it’s clear that the fruits of labor are enjoyed by only a select group—average wealth ($403,974) is almost seven times higher than median wealth ($61,667). This growing inequality gap knocks the country down to 18th place for median wealth.

The Nordic countries of Norway and Denmark can be found in the top ten for average wealth, but they drop to 12th place ($80,054) and 19th place ($60,999) respectively for median wealth. Despite this difference, these countries also provide a strong safety net—including access to healthcare and education—to more vulnerable citizens.

Finally, wealth in Japan is fairly evenly distributed among its large middle class, which lands it in seventh place on the median wealth list at $103,861. One possible reason is that the pay gap ratio between Japanese CEOs and the average worker is much lower than other developed nations.

With reducing income inequality as a priority for many countries around the world, how might this list change in coming years?

Footnote: All data estimates are using mid-2018 values, and reflected in US$.

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Chart of the Week

Mapped: The World’s Oldest Democracies

This map shows the 25 oldest democracies in the world, based on how long current democratic governments have been in continuous power.

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Mapped: The World’s Oldest Democracies

Which country today is the world’s oldest democracy?

It’s a loaded question ⁠— as you’ll see, there is plenty of nuance involved in the answer.

Depending on how you define things, there are many jurisdictions that can lay claim to this coveted title. Let’s dive into some of these technicalities, and then we can provide context for how we’ve defined democracy in today’s particular chart.

Laying the Claim

If you’re looking for the very first instance of democracy, credit is often attributed to Ancient Athens. It’s there the term originated, based on the Greek words demos (“common people”) and kratos (“strength”). In the 6th century BC, the city-state allowed all landowners to speak at the legislative assembly, blazing a path that would be followed by democracies in the future.

However, Ancient Athens wasn’t really a country in the modern sense. It’s also not around anymore, so that certainly disqualifies the oldest continuous democratic country today.

Iceland and the Isle of Man both have interesting claims to democracy. Each has a parliamentary body that is over 1,000 years old, making them the longest standing democratic institutions in the world. But Iceland only got its independence in 1944 from Denmark — and while it is self-governing, the Isle of Man is not a country.

Of course, when we’re talking about democracy today, we’re really talking about universal suffrage. New Zealand may have the best claim here — by 1893, the self-governing colony allowed all women and ethnicities to vote in elections.

A Common Set of Criteria

While many civilizations, institutions, and societies have a rightful claim to contributing to democracy (including many we did not mention above), measuring the world’s oldest democracies today requires following a common set of criteria.

In today’s chart, we used data from Boix, C., Miller, M., & Rosato, S. (2013, 2018), which looks at the age of democratic regimes for 219 countries since the year 1800. Countries are classified as democracies if they meet the following conditions:

  1. Executive:
    The executive is directly or indirectly elected in popular elections and is responsible either directly to voters or to a legislature.
  2. Legislature:
    The legislature (or the executive if elected directly) is chosen in free and fair elections.
  3. Voting:
    A majority of adult men has the right to vote.
  4. Democracies also have to be continuous in order to count. Although France has important democratic origins, the country is currently on its fifth republic since the French Revolution, thanks to Napoleon, Vichy France, and other instances where things went sideways.

    While the above criteria isn’t perfect, it does create a stable playing field to assess when countries adopted democratic systems in principle. (However, the exclusion of certain populations, notably women and specific ethnicities, in being given the right to vote, or to be elected to legislative assemblies, is another story).

    The Oldest Democracies, by Number of Years

    Using the above criteria, here is a list of the world’s 25 oldest democracies:

    RankCountryAge of Democracy (Years)
    #1🇺🇸 United States219*
    #2🇨🇭 Switzerland171
    #3🇳🇿 New Zealand162
    #4🇨🇦 Canada152
    #5🇬🇧 United Kingdom134
    #6🇱🇺 Luxembourg129
    #7🇧🇪 Belgium125
    #8🇳🇱 Netherlands122
    #9🇳🇴 Norway119
    #10🇦🇺 Australia118
    #11🇩🇰 Denmark118
    #12🇸🇪 Sweden108
    #13🇫🇮 Finland102
    #14🇮🇸 Iceland101
    #15🇮🇪 Ireland97
    #16🇸🇲 San Marino74
    #17🇦🇹 Austria73
    #18🇫🇷 France73
    #19🇮🇹 Italy73
    #20🇮🇱 Israel71
    #21🇨🇷 Costa Rica70
    #22🇮🇳 India69
    #23🇯🇵 Japan67
    #24🇨🇴 Colombia61
    #25🇯🇲 Jamaica57

    * The data goes back to 1800, so U.S. democracy can be considered at least 219 years old.

    Using this specific criteria, there is only one country with continuous democracy for more than 200 years (The United States), and fourteen countries with democracies older than a century.

    As you’ll notice in the data, many countries became democracies after World War II. The Japanese Empire, for example, was occupied by Allied Forces and then dissolved. It then regained sovereignty afterwards, emerging as a newly democratic regime.

    Final notes: The data here goes back to 1800, and we have adjusted it to be current as of 2019. One change we made was to Tunisia, which is listed as the 24th oldest democracy in the data. Based on our due diligence on the subject, we felt it was appropriate to leave it off the list, given that most experts see the country as only achieving the status in 2014 in the post-Arab Spring era.

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