Uncertainty in developed markets appears to have done little to dampen investor enthusiasm for the fast-growing markets in Brazil, Russia, India and China. The latest figures give reasons for optimism that financial centres across the so-called BRIC countries and south-east Asia are on track for strong and continued growth despite setbacks in major centres such as London and New York.
Data released by the International Monetary Fund in late 2010 shows that Brazil registered a 112% year-on-year increase in inward portfolio investment during 2009, followed by Indonesia and Russia, each with a 92% increase in investment compared with 2008. Meanwhile, China registered nearly 65% growth in portfolio investment during 2009 and India nearly 63%.
In fact, most Asian financial markets continued to grow during the global financial crisis. The 2010 foreign-exchange survey by the Bank for International Settlements (BIS) - the latest in a series carried out every three years - shows that average daily currency trading in Hong Kong - now the world's sixth-largest currency market - has risen 125% in the past six years. During April 2010, average currency trading in Hong Kong topped $238bn a day, just behind Singapore ($266bn) and Switzerland ($263bn).
Smaller Asian markets are also seeing rapid development. South Korea's foreign exchange market has more than doubled in size in six years, with average daily trading reaching $44bn in 2010, up from $35bn in 2007 and $21bn in 2004.
Although financial centres in developing economies still conduct only a fraction of the currency trading seen in major developed markets, volumes are growing fast. Brazil's average daily currency market has risen 133% in the past three years, and by a staggering 250% since the 2004 BIS survey. The BIS's 2010 data showed that total global foreign exchange trading activity, by contrast, has grown by just 20% in three years.
Seoul now ranks as the world's 13th largest foreign exchange trading centre, with average daily trading of $44bn, ahead of European countries such as Belgium and Luxembourg (each with $33bn in daily trading), Italy ($29bn) and Spain ($29bn). Meanwhile, Malaysia's currency markets have grown 250% since 2004, Thailand's 133% and the Philippines' currency market, although still small with average daily trading volumes of just over $5bn, has grown 400% in six years.
Yet despite widespread evidence that BRIC markets are continuing their rapid growth in size, the latest indicators also show that these markets still have some way to go to catch up with the quality of regulation found in more developed financial centres. The Banker's regulatory scores - based on regulatory quality, perceived levels of corruption and tax standards - show that BRIC countries remain near the bottom of the rankings, with Brazil ranked 34, China 36, India 37 and Russia 40 out of 41.
Top performers
Outside the BRIC countries and Asia, other top-performing financial centres include Qatar, Portugal and Indonesia, which are among the handful of markets that received higher inflows of portfolio investment in 2009 than in 2007. Inward portfolio investment into Qatar rose just over 40% from 2007 to 2009, the biggest 24-month rise of any financial centre in The Banker's financial centres survey. Qatar also scores well for regulation, confirming Doha's aspirations of becoming a strong regional financial centre. Other strong performers in 2009 include Indonesia (with 92% growth in inward portfolio investment compared with 2008), Thailand (78%), South Africa (69%), Singapore (57%), Australia (57%) and South Korea (56%).
Most offshore financial centres have also seen financial conditions improve after the crisis. However, many leading specialist or offshore centres are still struggling to regain pre-crisis levels of inward investment, possibly due to regulatory initiatives that may have made them less attractive.
While Mauritius, Barbados and Andorra recorded increases in 2009 portfolio investment compared with 2007, the largest offshore financial centres such as the Cayman Islands, Bermuda, Jersey, Guernsey and the British Virgin Islands have still not recovered the highs reached in 2007.
Asset management
Although emerging financial centres such as Beijing, Shanghai, Shenzen, Hong Kong and Singapore are experiencing rapid growth in areas such as foreign exchange trading and inward portfolio investment, they still lag far behind traditionally dominant financial centres in asset management. Despite continued strong economic growth, the emerging centres have yet to create the deep pools of wealth seen in developed markets.
US financial centres remain the dominant players in asset management despite the financial crisis, with New York ranked first, Boston third, Chicago 10th and San Francisco 12th. The world's top 500 asset management companies in New York manage nearly 75% more wealth than their Paris-based rivals, and more than double that of firms based in London, triple that of firms based in Tokyo and four times that of firms based in either Munich or Frankfurt.
São Paulo in Brazil is the strongest BRIC financial centre for asset management, with the top 500 asset management companies accounting for $387bn of funds under management, followed by Mumbai with $254bn. Beijing, Shenzen and Shanghai follow some way behind with $92bn, $89bn and $48bn, respectively.
Even if China's economy does become the largest in the world within the next two to three decades, it may take several decades more before the country can build the levels of wealth currently managed in financial centres such as New York, Paris, Boston and London.
