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Global financial centres after the crisis: Traditional centres are losing market shares as emerging markets rise
By Finfacts Team
Aug 3, 2010 - 7:51:02 AM
Global financial centres after the crisis: The financial crisis and its regulatory consequences are set to change the
landscape of financial centres worldwide, according to a new report published on
Monday. Traditional centres are losing market shares as emerging markets rise.
Deutsche Bank Research says US and EU financial markets continue to provide around
three-quarters of global financial services, albeit, after the crisis, at
substantially lower overall levels of market activity in many market segments.
Emerging financial markets, especially in Asia, have grown strongly in past
years and are set to accelerate their catch-up process.
DBR says the traditional financial centres are
repeatedly found in top ranks as regards their international competitiveness,
typically including London, New York, Hong Kong, Singapore, Tokyo, Chicago, and
Zurich. Their competitiveness ratings have not changed significantly over the
past years. Emerging financial centres such as Beijing, Seoul, Shenzhen,
Shanghai, and Dubai have improved their global ranking strongly since 2007,
raising their competitiveness ratings by 42% for Seoul, 27% for Beijing, 22% for
Mumbai, and 16% for Shanghai.
DBR has identified four drivers of financial centre competitiveness after
the crisis: (1) The big-4 financial centres will remain strongholds of global
finance. (2) The crisis accelerates the trend towards a multi-polar financial
industry, with emerging financial centres gaining in size and competitiveness.
(3) National financial markets may benefit from domestically-oriented policies
in the short run, but will find it harder to compete in the long run. (4)
Providing a good regulatory framework will be a key determinant of
competitiveness going forward.
The report says foreign exchange trading remains highly concentrated in
London and Chicago, with the UK and the US capturing a combined 50% share in
global trading. 70% of all foreign
exchange derivatives transactions are undertaken in the US and the EU.
Economist, Steffen Kern, says these impressive figures, however, cannot belie the fact that the historic
position of the traditional financial centres in Europe and America is
increasingly being challenged by emerging competitors. Equity markets are an illustrative and in large parts
representative example: The transatlantic share in global stock market capitalisation has declined substantially from its 78% peak in 2001 to just over
50% today, while its share in stock trading has fallen from 86% to just over 70%
in the same period. Strikingly,
the growth of stock markets in the BRIC (Brazil, Russia, India and China) countries amounted to more than 40% per
year, while the EU and US markets actually contracted. Likewise, the share of
the BRIC countries in the number of listed companies worldwide has jumped from
just over 2% in 2000 to 22% today. More than half of the world’s IPOs in 2009 were listed in China
alone. Similarly, Asia’s share in
the investment banking revenue pool rose from 13% in 2000 to more than 20% in
2009.14
In light of these long-term trends, Kern says it is evident that traditional financial centres, including New York, London, Paris, Zurich but also Hong Kong and
Singapore are facing heightening pressure to maintain their roles.
Dublin's International Financial
Services Centre (IFSC) ranking in the City of London's Global Financial Centres'
Index for March 2010, is at 31, having plunged during the crisis. It has a
ranking of 8 among 15 European centres.
Steffen Kern says some of the emerging
centres have international ambitions, and it will not be long before Beijing,
Shanghai and Dubai will rise to global importance and challenge the established
centres. If anything, the crisis has accelerated this process.
At the same time, national financial market
places currently benefit from the focus by market participants and policymakers
on the domestic dimension. But there are indicators that suggest this trend may
be short-lived. Centres which either lack the critical mass in terms of
underlying economic growth or concentration of financial activity - - including
many continental EU markets such as Frankfurt, Paris, or Madrid - - will find it
harder to compete in the long run.
