The U.S. economy and its stock market had unprecedented growth during the 1990s through 2008. Today both the NYSE and NASDAQ dominate other stock exchanges worldwide in terms of market capitalization, value of trading in domestic shares, value of trading in foreign shares (except for the London Stock Exchange [LSE]), numbers of domestic listed companies, and numbers of foreign listed companies. The relative importance of the Americas in the global equity market has also increased. Market capitalization in the Americas as a percentage of the global total stood at 43% at the start of 2008. But even here, the forces of global competition are making themselves felt. The Committee on Capital Market Regulation, whose members are appointed by the SEC in consultation with the Federal Reserve Board of Govenors and the U.S. Treasury, has concluded that the United States could lose its dominance in the global capital markets.
Western Europe
Europe is the second largest equity market region in the world in terms of market capitalization and trading volume. Economic expansion significantly contributed to the rapid growth in European equity markets. A related factor in Continental Europe has been a gradual shift to an equity orientation that long has characterized the London and North American equity markets.8 Privatizations of large government entities have made European equity markets more prominent and have attracted noninstitutional investors, who until recently were not active in Continental Europe. Finally, confidence in European markets has grown with the success of the European Monetary Union (EMU).
European equity markets will continue to grow. Pension reforms, for one, are creating new demand for investment opportunities.9 Also, more and more foreign investors are entering European equity markets. Cross-border equity flows are increasing as a percentage of cross-border bond flows, in part because equity has proved to be a profitable investment. In addition, the advent of the euro has prompted a rush of
cross-border mergers, which are expected to continue. Intense rivalry among European stock exchanges has contributed to the development of an equity culture. Continental European markets have become more investor oriented to increase their credibility and attract new listings. External investors, in particular foreign investors and institutional investors, are demanding expanded disclosure and improved corporate governance. In addition, equity market development has become increasingly important to national governments and regulators, who also compete for recognition and prestige. Many European securities regulators and stock exchanges have implemented more stringent market rules and are strengthening their enforcement efforts.
Asia
Many experts are predicting that Asia will become the second most important equity market region. The People’s Republic of China (China) has emerged as a major global economy, and the “Asian Tiger” nations continue to experience phenomenal growth and development.
Critics argue that Asian accounting measurement, disclosure, and auditing standards and the monitoring and enforcement of those standards are weak.10 Some Asian governments periodically announce that they will intervene in equity markets to boost share prices, and market manipulation is not uncommon.11 However, the prospects for continued growth in Asian equity markets are strong.
Market capitalization as a percentage of gross domestic product (GDP) in Asia is lower than that in the United States and several major European markets. This suggests, however, that equity markets can play a much larger role in many Asian economies. Also, Asian governments and stock exchanges appear eager to improve market quality and credibility to attract investors.12 As mentioned earlier, Asian-Pacific markets (e.g., China, India, Korea, Taiwan, and Hong Kong) have grown rapidly, and are experiencing heavy trading volume relative to market capitalization.
