China Leads Growth in Global Financial Assets
European financial assets are close to on par with the US, while China’s are growing at an astounding pace, according to a new report from McKinsey Global Institute. Corrected for fluctuations in exchange rates, the total value of the world’s financial assets grew an impressive $18.9 trillion, or 13%, during 2006, according to MGI. In nominal terms, financial assets, including equities, private and government debt securities, and bank deposits, rose 17% to $167 trillion, MGI says in its fourth annual report, Mapping Global Capital Markets (free after registration).
The United States remains the world’s largest and most liquid financial market, with $56.1 trillion dollars in assets, or nearly one third of the global total.
Considered as a whole, however, European capital assets, valued at $53.2 trillion, were fast approaching parity with those of the US. This figure includes the UK ($10 trillion); eurozone economies, $37.6 trillion; and other Western European nations at $5.6 trillion. Perhaps more importantly, “the value of euro currency in circulation passed that of the dollar notes in the world for the first time,” as the euro emerges to rival to the dollar as the world’s preferred reserve currency.
China’s financial assets saw the highest level of growth of any country: a truly astounding 44%. In absolute terms, they grew more than any other country besides the US. China also became the world’s largest exporter of capital in 2006. Furthermore, since the beginning of the decade, Chinese IPOs have also come to rival those of the eurozone.
Other emerging economies have recovered from the turmoil of the late 1990s. Since that time, the financial assets of emerging economies – a group that includes China – have grown at more than twice the rate of those of developed countries.
Cross-border capital flows reached $8.2 trillion, which was a jump of $1.3 trillion, and nearly triple the level of three years ago. Developed countries were responsible for roughly four fifths of this trend: “Together, the eurozone, the United States, and the United Kingdom accounted for 80 percent of growth in global capital flows over the past ten years.”
… the eurozone countries together now have as many financial links with other regions of the world, including emerging markets, as does the United States. Notably, Asia lacks a single dominant financial hub and has relatively weak cross-border financial ties with any other region.
Over half of the growth in cross-border flows has come from eurozone economies. Roughly half of that growth, in turn, has been between eurozone economies. Much of the other half, meanwhile, has come from foreign direct investment in Europe, particularly within the UK, by firms looking to short-circuit trade barriers erected by “Fortress Europe.” That is, import of capital has been used as a mechanism to avoid barriers to the import of goods.
“Cross-border capital flows into emerging markets,” however, “have grown at nearly twice the rate of flows in developed countries. They reached a new height of $700 billion – but that is still less than ten percent of the global total.”
Foreign ownership of financial assets, meanwhile, grew $10.8 trillion in 2006, to $74.5 trillion, MGI said.
In 1990, foreign investors owned less than one in ten equities worldwide. By 2006, they held more than one in four… Foreign ownership of government bonds increased from 11% to 31% in 2006 and in corporate bonds from 7% to 21%.
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