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Asia and emerging financial centres of the world
Material posted: Publication date: 14-07-2014

The last few decades, a marked expansion of financial markets worldwide in both developed and developing countries. Especially notable increase of capital inflows to the emerging markets of Asia, which are displacing London and new York. So how much will financial centres in 25 years and where will the financial capital of the world?

A bit of history

In 1602 the Dutch East India company opened the world's first stock exchange in Amsterdam, as aspired to leadership in the field of high-yield international trade in spices from the East and she needed money to Finance his fleet of merchant ships.

The Amsterdam stock exchange started life as the open-air market where traders could buy and sell stocks and bonds of the East India company. These traders soon invented the first derivatives: they were simple options for purchase and sale, which granted the right to trade shares in the future. Then other companies started to issue shares on the stock exchange, and in 1611 it was moved to a new beautiful new building. Competing European capital began to open its own stock exchange. The development of the stock market was in a full swing.

Today the exchange Amsterdam is a branch of Euronext, the exchange's holding company, which also works is the operator of stock exchanges of Brussels and Paris. Euronext, in turn, owned by IntercontinentalExchange group Inc (ICE), which in total is the operator of 23 exchanges around the world, including the famous new York stock exchange (NYSE), which it acquired late last year for $8.2 billion

Until then came the progress

Of course, in the era of market consolidation, globalization of capital and electronic trading 24 hours a day and 7 days a week physical location of the exchange already has lower value. But however complex infrastructure of modern Finance is still concentrated in a few major cities around the world.

Improvement of technologies and the democratization of access to markets lead to increased competition with traditional exchanges, online trading systems. In particular, the trading system Instinet takes about 30% of the trading volume of the shares who have undergone listing on NASDAQ.

"If you have a laptop and a satellite phone, you can trade even with the top of the mountain, says mark Jandl, Deputy Director of London-based Z/Yen Group, which twice a year is the rating of the leading financial centres in the world. - And yet people are trying to work with the exchange of the cities, being close to its customers and suppliers, even if it is not necessary".

Ratings and reputation global financial centres

Company Z/Yen for the rating of world financial centers uses the survey results and other data that help to rank the cities according to criteria such as reputation, business climate, financial sector development, infrastructure and human capital. And here in the latest ranking, published in March, new York has supplanted London from the top spot for the first time since 2007, Hong Kong, Singapore and Zurich completing the top five.

Why London fell in the rankings? JENDL points to the faltering reputation of London as a global financial centre amid scandal over manipulation of the LIBOR rates and allegations of fraud in the foreign exchange markets. In addition, there is some uncertainty in connection with the upcoming UK elections that will help determine whether it remains Britain in the European Union.

Another important factor for London - the Scotland referendum on independence which will take place in September. If Scottish voters choose independence, then such major financial institutions as Royal Bank of Scotland and Scottish Widows, are likely to move their headquarters to London just because the Scottish economy is too small to enable independent Scottish government could save them in the event of another financial crisis.

At the same time in the United States active actions of law enforcement agencies, like fine against BNP Paribas $10 billion for violation of trade sanctions by the U.S. against Iran and other countries, raised fears that the U.S. is becoming less hospitable to Finance.

Competitors in London and new York from Asia

If not to take into account the normative dimension, the increase in capital flows to emerging markets in Asia may be due to their economic growth. A study by McKinsey Global Institute showed that in 2012 in the emerging economies sent about 32% of global financial flows, compared with 5% in 2002 the company Recently McKinsey published a forecast according to which, the consumer class will increase by approximately 1.8 billion people by 2025, and almost all of these people will be in developing countries. The company expects that consumers in emerging markets will spend $30 trillion a year by 2025, compared with $12 trillion a year today.

All this is good news for emerging Asian financial centers such as Shanghai, Seoul and Kuala Lumpur, and for the already established giants like Hong Kong and Singapore. There are serious reasons to believe that new York and London will continue to remain major financial players in the foreseeable future, at least for the reason that the language of international Finance is still English and not Chinese. New York and London remain attractive centres: it is a huge metropolis with liquid capital markets and extensive experience with Finance. Also a very important aspect is a reliable legal system in both cities.

"This is one of the reasons why so many Russian contracts is in London,” says Ruben Lee, CEO, Oxford Finance Group and author of the newly released book “the Work of the world's markets: the governance of financial infrastructure". He added: "This is also the reason why we are seeing huge inflows of capital from Russia, the Middle East and China to London and new York".

The decentralized nature of modern Finance is the reason that working with authoritarian governments not too comfortable. And this is another reason to doubt that Shanghai and other emerging Asian centres will supplant new York and London in the near future.

It is now clear that in the world there will be many financial centers across 25 years. In addition to these “supermarkets" capital, like new York, London and Hong Kong, we observed the appearance of small centers that specialize in specific sectors: calgary - energy Finance, Busan (South Korea) - on Finance for the Maritime industry, Nairobi and Johannesburg in the capital markets of Africa.

Where will the financial capital of the world in 2039? Ultimately the markets themselves will make a choice. And as they say on wall street, “past performance does not guarantee future success”.


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