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4-year bull market fans surge in financial assets
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lg_6273
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16-Jan-2007 20:40
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4-year bull market fans surge in financial assets Value worldwide by end-2005 hits US$140t: McKinsey By NEIL BEHRMANN IN LONDON, Published January 16, 2007 THE four-year bull market has caused an explosion in global financial assets. 
The value of total financial assets worldwide expanded to US$140 trillion by end-2005, from US$95 trillion in 2002 and US$64 trillion in 1995, according to a report by consulting firm McKinsey. The surge in value has been caused mainly by appreciation of equities, but issues and values of government and corporate bonds and other credit securities and bank deposits have also grown. McKinsey does not have the hard figures for 2006. But as the bull market continued last year and currencies appreciated against the US dollar, total global financial assets could have increased to about US$160 trillion by the end of last year, a McKinsey official estimates. The firm projects that if the assets grow at the same rate as in the first five years of the decade, they could reach US$214 trillion by 2010. At end-2005, there were US$51 trillion of financial assets in the United States; followed by the eurozone with almost US$30 trillion; Japan with US$19.5 trillion; and the United Kingdom with about US$8 trillion. Related article: Click here for McKinsey's Mapping the Global Capital Markets report 'Asian financial markets remain fragmented and have very different characteristics,' says the McKinsey report. 'For instance, Japan has a very large government-debt market, whereas in China nearly three-quarters of its more than US$5 trillion in financial assets are held as bank deposits.' India's financial system is significantly smaller, with US$1.4 trillion of assets but is more balanced between bank deposits, bonds and equities, according to McKinsey. The value of equities soared to US$44 trillion in 2005 from US$23 trillion in 2002. Some individual markets may have overheated, says McKinsey, but the vast majority of equity-market increases worldwide were due to higher earnings and new issues. The US real estate boom also brought about a sharp increase in mortgage-backed securities, while there was a global 'corporate borrowing spree', McKinsey says. The value of government, corporate bonds and other credit securities jumped to US$58 trillion in 2005 from US$43 trillion in 2002. In 1980, the global financial stock was roughly equal to world gross domestic product, says McKinsey. By 1993, it was double the size, at more than three times world GDP. For the most part, deeper financial markets are beneficial because they are more liquid, create better access to capital for borrowers, offer more efficient pricing and greater opportunities for sharing risk, McKinsey's report says. However, the expansion 'can sometimes be due to unhealthy increases in government debt or to asset-price bubbles'. In 2005, worldwide cross-border capital flows, which include foreign purchases of equity and debt securities, cross-border lending and foreign direct investment, increased to more than US$6 trillion - the highest level ever. Since 1990, cross-border capital flows have grown 10.7 per cent annually, the consulting firm calculates. Advances in technology and the deregulation of financial markets around the world have enabled this growth and have given rise to a growing class of global investors, it explains. Although investors in most countries still show a marked preference for financial assets in their home country, roughly one in four debt securities and one in five equities today is owned by an investor outside the issuing market. For instance, a US investor buys Thai equities or a Singaporean investor purchases US equities. 'National financial markets are increasingly integrating into a single global market for capital,' McKinsey concludes. |
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