No Lack Of Capital In This Global Recovery
It's the hottest buzz in world financial circles. From the Bundesbank to Citibank, the really big issue of the moment is whether or not there is a global capital shortage. If there is, interest rates, already rising, may jump and choke off growth. If not, the world economy, now building up steam in Europe, Asia, and Latin America, will chug along, generating jobs, income, and lots of trade.
So far, the debate has centered around the demand and supply of capital. Is there enough capital to meet the soaring demands of China, India, Mexico, and Russia, as well as the Group of Seven industrial countries?
The real issue, however, involves not simply the quantity of capital but its delivery. This global recovery is different from all others because of the prominent role private capital markets are playing in financing growth, particularly in the emerging markets. Where there are new, creative ways of moving capital, capital is being delivered. Where there aren't, capital stops flowing and economic growth stalls.
Take the rise of new capital markets around the world. In Russia, Americans and Europeans are investing some $500 million a month in new equities. Stock markets in China trade billions a year, and the combined value of equities on Latin American bolsas comes to nearly $500 billion.
The U.S. mutual-fund industry is investing billions of dollars globally. Four Vietnam funds have combined assets of $260 million--not bad for a country with no stock exchange.
But as private capital moves into markets around the world, investors want more protection. They need higher disclosure standards and greater transparency of balance sheets. This is as true for U.S. pension institutions as it is for Chinese and Russian individual investors. Delivering capital efficiently requires knowing the risks to calculate the rewards. Right now, there is no capital shortage for any country willing to do just that.