McKinsey Global Institute (MGI) released a report on the new “power brokers” in the global financial markets. This was featured in Newsweek (issue 29 October 2007).
The rising major financial power brokers include:
1. Investors from oil-exporting nations (known as petro-investors)
2. Asian Central Banks
3. Hedge Funds
4. Private-equity firms
According to MGI, these 4 key players have combined assets that have tripled since 2000 to around US$8.5 trillion at the end of 2006.
With the rise in world oil prices since 2002, the wealth of the petro-investors was estimated at between US$3.4 trillion and US$3.8 trillion in foreign financial assets.
This is followed by Asian central banks with foreign-reserve assets of US$3.1 trillion. Some of the wealthier central banks include People’s Bank of China, Abu Dhabi Investment Authority, Bank of Japan. The countries benefited from the huge trade surpluses and significant foreign investments and exchange-rate policies.
Private-equity firms though smallest of the 4 players (US$710 billion at end 2006), they are the ones that buy out corporations and take them private through using debts and investors money.
Hedge Funds are estimated to have assets of US$1.5 trillion in 2006. By mid-2007, there are 7,300 funds managing some US$1.7 trillion in assets. Hedge Funds have been in the headlines most of the times and most talked about when the financial markets moved spectacularly. However, there are other players that can move the financial markets which are less transparent with regard to information release.
If we make the assumption that these global players are rational and invest for best returns, and assuming that there are perfect information and the financial market is efficient, then as investors we can stay the course if we believe in the long-term fundamentals of the specific financial instruments we invest in. However, there is also a need to study the macro-economic factors of country economies to determine whether to stay invested.
Written on 10/27/2007 11:00 AM
Copyright © 2007, the author known as LKT in Singapore.
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.