Momtchil Pojarliev
Traders Magazine Online News

Some Like It Hedged

BNP Asset Management's Pojarliev discusses a variety of options to address foreign currency exposures. Although there is no single best-practice solution for addressing foreign currency exposures, institutional investors have three main choices, he says.

Traders Poll

Amid changes in builder, do you think the CAT project will be completed by 2020?

Free Site Registration

April 16, 2007

Strengthening America

By Editorial Staff

Also in this article

  • Strengthening America
  • Page 2

Steps needed to make our U.S. capital markets more competitive

Despite sustained economic growth and the creation of 7 million new jobs since 2003, the competitiveness of the United States economy is facing a serious challenge from markets overseas. Certainly, America remains the world's premier economic superpower, but gone are the days when capital would blindly flow to Wall Street-and from there to every sector of our national economy. The success of our financial markets is essential to America's long-term economic prosperity, sustained economic growth and the creation of quality jobs. The GDP of the financial services industry, the third-largest sector of the U.S. economy, topped $1 trillion in 2005, and represented 8.1 percent of total U.S. GDP and 5 percent of total private sector employment.

A decline in U.S. economic competitiveness would have a significant negative impact on our national economy. One recent study predicted an annual loss of $30 billion in revenue from the financial services sector alone over the next five years, along with the 30,000 to 60,000 domestic jobs this money would have created.

In addition, the report states that capital markets in European and Asian economies may have significantly more room to grow than in the U.S., due to lower capital markets penetration-debt and equity financing compared with GDP.

The increased competitiveness of overseas markets is due, in part, to their own maturation and human innovation. Foreign markets, using the United States as a model, have enhanced their transparency, stability and liquidity in recent years. For example, London's Big Bang reforms in 1986 laid the groundwork for its rise as a financial powerhouse. Many other overseas markets have followed.On the heels of this reform movement came a technological revolution that, along with a reduction of trade barriers, produced a globalized marketplace that eliminated barriers to the movement of capital.

As a result, businesses now have choices. Their natural and historical attraction to the liquidity of U.S. markets has given way to broader considerations.

That helps explain why companies have been increasingly turning to the markets in London, Hong Kong and Dubai in recent years. For instance, 96 percent of the largest global IPOs, a leading indicator of market competitiveness, were issued in foreign markets in 2005. That same year, only 10 percent of all global IPOs chose to list on the NYSE, compared with 37 percent five years earlier. London's market share has jumped to nearly 25 percent during that same period.

The United States cannot control the evolution of overseas markets or their ability to compete in a global marketplace, nor should it want to. A growing global market offers expanded opportunities for American businesses and investors.But we must adapt to these changing circumstances to maintain our competitive advantage. Unfortunately, in the areas of regulatory burden and litigation risk, we have been slow to act or, worse, created more complex and costly systems.

In the United States, new regulatory requirements-most notably the implementation of the Sarbanes-Oxley Act (SOX)-have contributed to a climate that encourages companies to explore the foreign and private equity markets.