Over the past decade, there has been a large increase in cross-border global capital market transactions. Governments and businesses sold equity in the IPO markets. The growth of emerging capital markets continues to have an important impact on global capital market transactions. Eastern capital markets’ volume underscores the perceived strength of the East in the global markets.
Companies around the globe seeking to enter the public markets have more choices than ever in the global emerging markets. While the development of deep local capital pools and necessary regulatory infrastructures will continue to evolve, more companies will access capital abroad from the three primary global capital markets of London, New York, and Hong Kong. However, analysts expect Asian markets to continue as an attractive capital source for developing economies.
What Are Global Capital Markets?
A global capital market interlinks with other financial exchanges across the globe to enable individuals and business or government entities to purchase or sell securities on a cross-border, international level. Interlinking of financial exchanges is seen as an informal and structured collaboration in the global capital markets.
Technological advances continue to facilitate the rapid movement of capital between local financial markets. Investors increasingly look for cross-currency investments. Global bond and foreign exchange markets are many times larger than equity markets. However, all assets are interlinked and visible in international markets today.
Global capital markets are growing as they integrate and collaborate. Investors continue to shift investments between markets to benefit from greater stability, regulation, and high-growth economic factors.
The power of the global capital markets has a profound impact on national economies, governments, and businesses around the world. Post-globalization financial markets aren’t defined by a specific geography or local market. Consequently, it’s important for investors to understand regulatory differences around the world, as they exist.
Investors need information to make timely investment decisions. They want investment growth and mitigation of associated risks. Most investors are accustomed to financial transparency in the Western markets. As more Western investors seek out rising opportunities in emerging global markets, these markets must adjust to customer demand. At the same time, as an emerging market matures, the market and local economy tend to offer more stability, reliability, and predictability.
As interlinking of global economies grows, so do global capital markets. Financial institutions transfer large amounts of investment assets each day in cross-border exchanges. It’s difficult to precisely assess the worth of the global capital markets. According to The Wall Street Journal, interlinked capital markets represent approximately USD 200 trillion plus.
8 Tips on Profiting from the Global Capital Markets
1. Develop a capital market strategy
Consider a global capital market strategy when exiting from private equity, spinning off a subsidiary of a multinational entity, and deleveraging the corporate balance sheet.
2. Recognize that global growth continues to shift towards the East
According to the United Nation research, real growth in the mature Western economy pales to the potential growth of developing Eastern economies.
3. Evaluate divergences in economic expectations for the emerging equity capital markets
Consider investment flows and consumer demand when seeking to tap financial exchanges for capital.
4. List your securities in local markets
Companies in the emerging markets once sought to avoid a small or illiquid global exchange. Listing securities in London, New York, or Hong Kong was considered more prestigious. Today’s IPO market reflects the rise of emerging markets financial exchanges. More newly public companies believe they can compete more successfully by listing their securities in local markets linked to the global capital markets. Part of the decision to sell away from the developed markets’ dominant financial centers may have something to do with bankers’ costs as well.
5. Consider developed financial markets for IPOs and secondary sales
Competition between financial exchanges continues to intensify. Greater financial sophistication and economic growth in the emerging markets adds fuel to the competition. Developed world corporates tend to prefer developed financial markets for IPOs and secondary sales.
6. Choose wisely
According to PwC research, corporations view Shanghai as the most potentially attractive venue for future foreign listings in the next decade. About half of respondents in a research study predicted that Shanghai will open its doors to more foreign investments in the near future. About 40 percent of study respondents say that New York will continue to lead the pack in global capital markets’ IPO launches. Finally, about one-fourth of respondents said that London exchanges will grow in importance in the global capital markets.
7. Investments in China and India will only thrive
According to The Wall Street Journal, Brazilian and Russian exchanges lag the Chinese and Indian markets. Entrepreneurial investment activity in India remains high. Analysts also expect Russia to increase in popularity. On the other hand, analysts predict the Brazil markets will continue to lag the Eastern Chinese and Indian financial markets.
8. Turn towards emerging capital markets
Developed markets continue to outpace emerging markets rivals by size. Regulatory and legal environments, political uncertainty, and local economies can sharply and quickly derail a shift of capital to emerging capital market. Consequently, uncertain regulatory environments are a big concern for companies considering an emerging market financial exchange. Government intervention in the financial markets is another major concern, according to The New York Times.
As you can see, there are more positive reasons to participate in the global capital markets than ever before. Perhaps the expansion of emerging capital markets is best demonstrated by the Asian securities markets. The combined capitalization of the Shanghai and Shenzhen equity markets rose from approximately USD 400 billion in 2005 to more than USD 6 trillion in 2016. The growth of China’s exchanges has been fueled by more than a thousand IPOs during the period.
Institutional investors continue to direct more capital to the Eastern and Asia-Pacific markets than towards Latin American markets. The perception persists as some analysts continue to recommend the long-term potential of the Brazilian capital markets. Analysts report increasing cross-border investments (in and out of Brazil) than in the past. In comparison, though, Brazil’s IPO activity is just a fraction of issues brought to market in China.
In conclusion, tapping the emerging global capital markets isn’t without risk. All markets rise and fall. Liquidity may be a concern in some smaller markets. Nonetheless, the growth of global capital markets is a robust engine for wealth creation.