Global Economic Intersection
Advertisement
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

Investors’ Long-term Quandry

admin by admin
September 30, 2012
in Uncategorized
0
0
SHARES
34
VIEWS
Share on FacebookShare on Twitter

Real Estate, Savings Accounts, Bonds, Stocks, Mutual Funds, ETFs

What Will Be The Next Investment Vehicle?

by Elliott Morss, Morss Global Finance

Introduction

Over the years, we have been treated to new investment vehicles every earth-nasa-photo2SMALLcentury/decade or two. Since cave man days, there has been real estate. Banks brought us savings accounts, followed shortly by brokers selling bonds and stocks. We then heard that placing large bets on individual stocks was too risky so we invested in mutual funds. And when we got the news that most mutual funds underperformed their closest index, we bought ETFs. At least that is what happened in the US and most of the developed world. But how about emerging market countries? Will they follow the same path?

A very interesting study was done on this subject several years back by McKinsey & Co., and much of the data that follows comes from their report. The question is relevant inasmuch McKinsey estimates that emerging market countries already own 21% of global financial assets and projects that by 2020 they will own 36%. And if you add in real estate, they are already the world’s largest asset holders. In what follows, I discuss several aspects of this continuing transformation and offer some hypotheses for the future.

Household Assets

Table 1 gives estimates of the relative importance of the different asset holdings of households. While real estate is the largest asset holding in both Germany and India, financial assets are more important in the US, as are its supporting services, both pension funds and insurance companies.

Real estate would be even less important in the US (14%) if mortgages were netted out. My sense is that real estate constitutes at least 50% of household assets in most emerging market countries. While financial markets are developing rapidly in China, many city dwellers even today purchase real estate for capital gains rather than equities.

elliott-2012-investing-sept-30-table-1

Source: McKinsey & Co.

Financial Investors – Who Are They?

Table 2 indicates that today’s investors differ significantly by country. Several things stand out:

  • Households in China control a much smaller share of financial assets than in the developed world. Governments, state enterprises and corporations control a lot more. This is also true for many other emerging market countries. State enterprises play a far more important role in these countries than in the West, e.g., 6 of the 10 largest oil companies are state-owned.
  • Sovereign wealth funds are large, with assets of $4.3 trillion. 37% of them are in the Middle East, 16% in China and 26% in other Asian countries.
  • The US is notable for the size of its “supporting” financial institutions – the pension and insurance companies.

elliott-2012-investing-sept-30-table-2

Source: McKinsey & Co.

Investment Vehicles

So how does the world invest its financial assets? Table 3 provides the answers. And here again, there are several notable features:

  • Asian and Latin American households appear quite conservative by Western standards by holding their assets in cash or deposits. Of course, this in part reflects the absence of alternative investment vehicles.
  • The US has a far larger share of its financial assets in equities than any other part of the world.
  • Emerging market central banks have conservative holdings. Sovereign Wealth Funds, in contrast, have even more of their funds in equities than even the US. This in part reflects Western financial management practices.

elliott-2012-investing-sept-30-table-3

Source: McKinsey & Co.

Another McKinsey report provides a somewhat different view of capital and debt markets (Table 4). Here we see how a country’s stock market capitalization compares to various loan and debt totals. Japan’s public debt is quite striking. Its stock market has declined over the last 20 years so households have purchased low-yielding government debt. In China, there is very little public or private debt aside from the high volume of bank loans that have gone primarily to state enterprises. The US is notable for its high level of securitized loans. Yes. Those are the loans banks make without regard to risk and sell off for fees….

elliott-2012-investing-sept-30-table-4

Source: McKinsey & Co.

Investment Vehicles Revisited – Equities, Mutual Funds and ETFs

Table 5 traces the evolution of investment vehicles. In 1995, stock brokers ruled the roost. By 1995, mutual funds had started their domination. The latest vehicle – ETFs – has grown rapidly in recent years. 2007 was the peak for equities and mutual funds globally and in the US. In the US, ETFs have continued to grow and cut into mutual fund dominance.

elliott-2012-investing-sept-30-table-51

Source: Investment Company Institute, Federal Reserve, Flow of Funds

Investment Implications

What if anything does all this tell us? One could see the US evolution from property to savings accounts to equities to mutual funds to ETFs happening in the developing world. Let’s hope they learn something from Western banking fiascos with securitized loans and sovereign debt – don’t let banks sell off the loans they make!

There is also the question of ETFs versus mutual funds. As I have suggested in an earlier piece, there are times to prefer one over the other.

Then there is the broader issue of what will happen to equity markets. In the first McKinsey piece cited, it is argued that by 2020, there will be an “equity gap” of $12.3 trillion where gap is defined as financing needs (mostly in emerging market countries) not covered by equity markets. One wonders. But it is clear that at least in the US, financial mechanisms labeled as “private equity” and “hedge funds” are buying up listed companies.

Right now, Western nations own 85% of all equities. Their purchases and sales pretty much determine what happens to equity prices in the developing world. And as I have noted, when financial panics occur, as they have with great frequency recently, Westerners sell their emerging market stocks off first. The result? Much wider swings in emerging markets than in Western stocks. Growing equity ownership in emerging markets should dampen the “betas” somewhat, but it will take time.

Related Articles

Other Investing articles by Elliott Morss

About the Author


elliott-morss-photo1Elliott Morss has a broad background in international finance and economics. He holds a Ph.D.in Political Economy from The Johns Hopkins University and has taught at the University of Michigan, Harvard, Boston University, Brandeis and the University of Palermo in Buenos Aires. During his career he worked in the Fiscal Affairs Department at the IMF with assignments in more than 45 countries. In addition, Elliott was a principle in a firm that became the largest contractor to USAID (United States Agency for International Development) and co-founded (and was president) of the Asia-Pacific Group with investments in Cambodia, China and Myanmar. He has co-authored seven books and published more than 50 professional journal articles. Elliott writes at his blog Morss Global Finance


Previous Post

Follow the Yellow Brick Road

Next Post

France: Employment and the Economy Deteriorated

Related Posts

Goldman Sachs Partners With Derivative Path To Enhance Transaction Banking
Business

Goldman Sachs Partners With Derivative Path To Enhance Transaction Banking

by John Wanguba
July 4, 2022
EU Ready To Tame ‘Wild West’ With New Crypto Market Regulations
Economics

EU Ready To Tame ‘Wild West’ With New Crypto Market Regulations

by John Wanguba
July 4, 2022
With IPOs On Hold, Banks' Stock Offering Fees Dropped
Business

With IPOs On Hold, Banks’ Stock Offering Fees Dropped

by John Wanguba
July 4, 2022
Germany Wants To Make Shares, SPACs, Start-ups, And IPOs More Attractive
Business

Germany Wants To Make Shares, SPACs, Start-ups, And IPOs More Attractive

by John Wanguba
July 2, 2022
Google Faces New EU Consumer Groups' Privacy Complaints
Business

Google Faces New EU Consumer Groups’ Privacy Complaints

by John Wanguba
July 2, 2022
Next Post

France: Employment and the Economy Deteriorated

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins banking banks Binance Bitcoin Bitcoin adoption Bitcoin market Bitcoin mining blockchain BTC business Coinbase crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi digital assets Elon Musk ETH Ethereum finance funding investment market analysis markets Metaverse mining NFT NFT marketplace NFTs nonfungible tokens nonfungible tokens (NFTs) price analysis regulation Russia social media technology Tesla the US Twitter

Archives

  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • Goldman Sachs Partners With Derivative Path To Enhance Transaction Banking
  • EU Ready To Tame ‘Wild West’ With New Crypto Market Regulations
  • With IPOs On Hold, Banks’ Stock Offering Fees Dropped

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

en English
ar Arabicbg Bulgarianda Danishnl Dutchen Englishfi Finnishfr Frenchde Germanel Greekit Italianja Japaneselv Latvianno Norwegianpl Polishpt Portuguesero Romanianes Spanishsv Swedish