Global Capital Markets: The USA Stands its Ground
Diana Farell et al. | The McKinsey Quarterly | February 2008
The world financial markets' present bout of turbulences should not hide the long-term and often brighter trends:
- Despite
occasional crises, global financial assets have expanded continuously over the
last decades. In 2006 alone, global assets increased by 17% to 167 trillion
USD.
- The
growing importance of emerging countries' financial markets and their
increasing integration in established markets is resulting in diversification
of financial risk amongst a larger number and variety of people. Foreign direct
investments in particular are linking markets closer together, and can have a stabilizing
effect in the event of a crisis. At the same time, and contrary to popular
belief, emerging countries are investing more capital abroad than they actually
bring in themselves. In 2006, thanks to booming exports and rising commodity
prices, this excess amounted to 332 bn USD.
- In Asia,
financial weight is shifting from Japan
to other potential financial centers such as Hong Kong,
Singapore, and Taiwan. These
three centers account for 24% of the foreign money invested in other Asian
countries whereas Japan
accounts for just 6%. The activity of Chinese companies in the stock exchange
also points to the growing significance of the region: in 2006, Chinese
companies raised as much money through IPO's as all companies in the eurozone
combined.
- Over the last ten years, half of the direct investments in the world came from the eurozone. This led to a higher level of integration within the zone itself as well as with the rest of the world. At the same time, the euro has gained importance. In April 2007, the value of all euro notes in circulation surpassed for the first time that of all dollar notes to be found around the world.
These trends point to a shift in financial power away from the USA and towards other parts of the world. Yet despite the rise of emerging markets and the strength of the eurozone, the USA remains the largest and most important global financial center. With over 56 trillion USD, the United States stands for one third of global assets. The country is still the most favored destination for foreign investment, and is itself an important source of capital flowing abroad: in 2006, American companies, households, pension funds, and other investors accounted for 1,1 trillion USD in foreign assets. Therefore, thanks to its size and attractiveness, the American market is and will remain the financial world leader for years to come.
This summary was prepared by the Atlantic Community editorial team from "Long-term trends in global capital markets" by Diana Farell et al. and published here in The McKinsey Quarterly.
Related material from the Atlantic Community:
- Petrodollars Pose no Risk to the Global Economy
- Transatlantic Economic Relations Remain Strong
- Emerging Global Finance Giants: The New Power Brokers
