U.S. And Europe Neck To Neck
The US looks poised to lose its mantle as the world’s dominant financial market because of a rapid rise in the depth and maturity of markets in Europe, a study suggests. The change may have occurred already, not least because US markets are beset by credit woes, according to research by McKinsey Global Institute. “We think the differential growth rates are so significant that it is quite likely Europe has overtaken the US,” said Diana Farrell, author of the report. The credit crisis has dented confidence in the health of America’s financial institutions and its model of finance.
A power shift is also under way in Asia as the Chinese market continues to boom while markets such as Japan stagnate. McKinsey suggests China’s booming trade surplus has put it into the position of being the world’s largest net exporter of capital, topping Japan, Germany and the oil exporters for the first time. The findings are likely to attract attention from bankers and policymakers since they come amid an intensifying debate about the changing pattern of financial power.
Meanwhile, since the launch of the single currency in 1999, European markets have been steadily growing in liquidity and size. And other parts of the world, such as Asia and the Gulf, are enjoying rapidly growing financial clout due to their large surpluses - a shift exemplified by the recent decision of Asian and Gulf Sovereign Wealth Funds to take large stakes in big US banks.
In 2006, McKinsey calculates that America’s markets had some $56,100bn ofassets. Europe, including the UK, had $53,200bn of assets, a sharp increase on recent years. On recent trajectories, this implies that Europe overtook the US in 2007.
