Global Assets $140 Trillion And Rising

by Phillip Morton, Investors Offshore

31 January 2007

The value of total global financial assets, including equities, government and corporate debt securities, and bank deposits, expanded to $140 trillion by the end of 2005, an increase of $7 trillion from a year earlier, according to a study by consulting firm McKinsey and Company.

The third annual 'Mapping the Global Markets' report found that the eurozone is emerging as a greater force in the global financial landscape, with the region adding $3.3 trillion of assets in 2005. This boosted financial depth to more than three times the eurozone’s combined GDP, and reflected a 6% annual growth rate over the last ten years – nearly twice the pace of Anglo–Saxon rivals.

Overall, the report found that depth of world financial markets rose to an all–time high of 316% – more than three times world GDP. McKinsey noted that deeper financial markets create better access to funding for companies, a theme confirmed by its survey of business executives.

According to the report, equities are the top source of recent growth, increasing by $7.1 trillion and accounting for nearly half of growth in global financial assets in 2005. The vast majority of equity market increases worldwide were due to increased earnings and new issuances rather than increases in P/E ratios.

Meanwhile, global cross–border capital flows topped $6 trillion, a new record, and more than double their level in 2002. McKinsey's data shows that foreign investors hold one in four debt securities and one in five equities, suggesting that national financial markets are increasingly integrating into a single global market for capital.

The majority (80%) of capital flows are between the US, UK, and euro area. Although global capital flows to emerging markets are growing rapidly, they still account for just 10% of global capital flows, the report found.

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