Technology is allowing stock exchanges of the developed and developing worlds to merge and provide sophisticated trading products, while national trade surpluses are leading to the creation of influential sovereign wealth funds. A shift is taking place from traditional money managers to sovereign wealth funds, hedge funds and private equity groups, all of which are less transparent and relatively unregulated, but which have tripled the value of their assets between 2000 and 2006.

In the sections below, we list some of the key statistics and developments for the two years prior to December 2007. To see how this fits into our global outlook, we refer you to our World overview. For more recent information, we suggest you refer to the MBendi Blog: Signposts to 2020.

A McKinsey Global Institute report forecast a shift in financial market power from traditional money managers to petrodollar investors, Asian central banks, hedge funds and private equity groups, all of which are less transparent and relatively unregulated, but which have tripled the value of their assets between 2000 and 2006.

ING estimated that in mid 2007 sovereign wealth funds controlled more than US$ 2,200 billion, which could grow to as much as US$ 9,000 billion by 2015. Morgan Stanley predicted that sovereign wealth funds, owned by governments, will grow assets to US$ 27.7 trillion in 2022 from US$ 2.5 trillion in mid-2007. In December 2007, the Saudi government announced plans to create a US$ 900 billion sovereign wealth fund.

Hedge Fund Research reported that in 2006 US Hedge Funds raised more than US$ 126 billion. By March 2007, Hedge funds had taken a large share of trading in US Treasury bonds. Hedge fund technology is now becoming available to individual investors at the same time as regulatory quirks in the USA are removed.

The market capitalisation of Europe's 24 stock markets rose to US$ 15,720 billion at end March 2007, higher than the market capitalisation of US exchanges (US$ 15,640) for the first time since the first world war. By August 2007, the Chinese stock market, including Hong Kong, was bigger by market cap than that of Japan. However, according to the World Bank, Japan's economy is still 63% larger than China's.

In January 2006, the value of shares on China's Shanghai and Shenzhen stock exchanges topped US$ 1 trillion in value, triple the value a year before, making it the third largest in Asia after Japan at US$ 4.8 trillion and Hong Kong US$ 2.1 trillion. China's mainland stock exchanges rose 130% in 2006. Dealogic reported that Chinese exchanges raised US$ 43.1 billion in the year to November 2006, compared to US$ 38 billion for US exchanges and London Euro 31.4 billion. Nasdaq predicted that Chinese companies could become the largest source on non-US listings on the exchange. Currently Israel has 69, Canada 56 and China 40 companies listed on Nasdaq. In June 2007, the UK Treasury reported foreign ownership of British companies rose from 30% to 50% in 10 years.

UNCTAD reported that 2006 FDI inflows rose 38% to US$ 1,306 billion, with 2007 expected to be a record high of US$ 1,500 billion. There were 172 M&A deals in 2006 worth more than US$ 1 billion. The USA was both the largest recipient and provider of FDI. FDI to developing countries rose 21% to US$ 379 billion, while FDI to Africa doubled between 2004 and 2006 to US$ 36 billion. Cross-border M&A in 1H2007 rose 58% to US$ 581 billion. Infrastructure deals were US$ 145 billion in 2005, up 180% from 2000.

According to Dealogic, in 2007 the amount of money raised in IPOs reached a record US$ 312.5 billion, up 17% from 2006. IPOs from BRIC countries accounted for 39% of the volume, up from 32% in 2006. Seven out of the ten largest IPOs were from emerging markets. The largest volumes of IPOs were in China (US$ 62 billion), the USA (US$ 55.7 billion), Brazil (US$ 32 billion) and Russia (US$ 18.2 billion). US$ 22 billion was raised by renewable energy companies, more than double 2006.

Global M&A was worth a record US$ 3.9 trillion for the year to November 2006. Emerging market M&A was up 49% on 2005 at US$ 619.5 billion in 10,841 deals. PWC estimates that M&A in the global energy sector were 52% higher in 2006 than 2005 at US$ 300 billion as a result of big deals in Europe.

KPMG estimated that world M&A activity in 1H2007 was 50% up from 1H2006 at US$ 2,780 billion. Ernst and Young reported global IPOs in 2Q2007 with US$ 88 billion raised in 531 public offerings. Companies in the USA raised more from private placements than IPOs for the first time ever in 2006. Thomson Financial reports the value of companies delisted in 2006 as US$ 150 billion, triple 2004, while the value of new listings was more than US$ 250 billion. Private equity investments in China dropped by 13% in 2006.

Celent reported that the number of equities trades increased 44% from 1H2006 to 1H2007. The NYSE, Nadaq and India's National Stock Exchange were the most active by volume. The Shanghai and Shenzhen Stock Exchanges recorded value growth of 591% and 485% respectively. The Hong Kong Exchange is the most profitable, with margins of 61%, followed by the LSE and BME (Spain).

The market capitalisation of Europe's 24 stock markets rose to US$ 15,720 billion at end March 2007, higher than the market capitalisation of US exchanges (US$ 15,640) for the first time since the first world war. By August 2007, the Chinese stock market, including Hong Kong, was bigger by market cap than that of Japan. However, according to the World Bank, Japan's economy is still 63% larger than China's.

The Dow Jones Global Exchanges Index rose 62% in the year to October 2006. 4Q2006 NYSE Group profit was US$ 45 million compared to a loss of US$ 20 million in 4Q2005. World stock exchanges reported record 1Q2007 profits, with NYSE profit up 123%, CBOE up 252%, BME 54%, Bursa Malaysia 205% and Hong Kong 95%.

Dealogic reported that Chinese exchanges raised US$ 43.1 billion in the year to November 2006, compared to US$ 38 billion for US exchanges and London Euro 31.4 billion. Nasdaq predicted that Chinese companies could become the largest source on non-US listings on the exchange. Currently Israel has 69, Canada 56 and China 40 companies listed on Nasdaq. In June 2007, the UK Treasury reported foreign ownership of British companies rose from 30% to 50% in 10 years.

The value of shares traded on China's Shanghai and Shenzhen stock exchanges on 9th May 2007 was greater than the value of shares traded on all the other Asian exchanges combined.

In November 2006, Morgan Stanley Capital International Latin America index showed it had gained 109.7% in two years.

The Bank for International Settlements reports UK share of forex trading volumes increased from 31.3% in 2004 to 34.1% of global trades in 2007 while US market share dropped from 19.2% to 16.6%. Over the period daily volumes increased 71% to US$ 3,210 billion in April 2007.

The Baltic Exchange reports the value of freight derivatives has increased from US$ 3 billion in 2000 to US$ 57 billion by end 2006 to a forecast US$ 150 billion at end 2007 due to greater involvement of banks and hedge funds. The physical market is US$ 140 billion.

During 2006 and 2007, several exchanges demutualised or listed. There also a spate of merger and acquisition activity, much of is inter-continental, as well as increased co-operation, perhaps preparatory to closer ties.

The Korea Exchange announced plan to list on itself in June 2007. In November 2006, Nymex listed on the LSE, raising US$ 300 million from the IPO. In December 2006, the Montreal Exchange announced a planned listing. In June 2007, the Tokyo Stock Exchange appointed advisers re listing outside Japan. Also in June 2007, the Tokyo Commodity Exchange announced plans to demutualise preparatory to listing. In December 2007, the Taiwan Stock Exchange announced plans to sell up to 25% of its equity during or after a 2009 IPO.

In October 2006, the Chicago Mercantile Exchange and Chicago Board of Trade agreed to merge. In March, 2007, the Intercontinental Exchange of Atlanta made a bid for the Chicago Board of Trade. In May 2007, Deutsche Borse bought US based Intercontinental Securities Exchange. In August 2007, the ICE raised its bid for the Winnipeg Commodity Exchange in response to bid from CME group partners. In November 2007, Nasdaq agreed to buy the Philadelphia Stock Exchange. In December 2007, the Toronto Stock Exchange agreed to buy the Montreal Stock Exchange.

In October 2006, the Borsa Italiana board met to consider merger proposals involving Euronext and Deutsche Borse. In October 2006, the OMX bought 10% of the Oslo Stock Exchange. In November 2006, Nasdaq made a bid for the LSE. In December 2006, shareholders approved the merger of the NYSE and Euronext. In June 2007, the London Stock Exchange started merger talks with Borse Italiana. In August 2007, Borse Dubai made a bid for 25% of OMX. In August 2007, hedge funds bought 25% of OMX. In August 2007, Nasdaq announced plans to sell its stake in the LSE in order to buy OMX. In September, the Borse Dubai and the Qatar Investment Authority purchased a combined 48% of the London Stock Exchange. In October 2007, Nasdaq acquired the Boston Stock Exchange. In October 2007, the Qatar Investment Authority applied for permission to increase its stake in OMX above 10%. In December 2007, OMX bought the energy derivatives business of Nord Pool of Norway.

In January 2007, the NYSE, Goldman Sachs, General Atlantic and Softbank Asian Infrastructure Fund bought 20% of the National Stock Exchange, India's largest exchange. In February 2007, Deutsche Borse bought 5% of the Bombay Stock Exchange. In March, 2007, the Singapore Stock Exchange bought 5% of the Bombay Stock Exchange. In March, 2007, Bursa Malaysia started talks to buy stakes in the stock exchanges of Indonesia and Vietnam. In June 2007, the Tokyo Stock Exchange bought a minority stake in the Singapore Stock Exchange. In November 2007, the Singapore Stock Exchange bought out the Chicago Mercantile Exchange's stake in their Joint Asian Derivatives Exchange. In December 2007, the Japan Securities Dealers Association started discussions about selling Jasdaq with the Osaka Stock Exchange.

In October 2006, Nasdaq and Jasdaq agreed to cooperate. In January 2007, the NYSE and Tokyo SE signed an alliance. In December 2007, Bursa Malaysia embarked on talks with the Chicago Mercantile Exchange about a possible partnership.

In December 2007, 12 financial institutions announced a new US derivatives exchange to compete with the CME Group. In October 2007, Egypt announced plans to open the first Middle East exchange for small and medium companies.

EPFR Global estimates emerging market equity funds have attracted net inflows of US$ 30 billion during first 3Q of 2007. MSCI estimates that the total market capitalisation of emerging market exchanges has increased from US$ 456 billion to US$ 3,555 billion in five years. Emerging markets were relatively unaffected by the 2007 USA sub-prime crisis.

In 2003 Chinese and Indian markets rose 83% and African 50%. In 2004, China and India rose 10% and Africa rose 53%. In 2005, India and China rose 29% and Africa 33%. The MSCI emerging market US$ index rose 230% from 2003 to May, 2006, when it dropped 20%, then continued to rise. Columbia (52%), Russia (35%) and Czech (32%) showed the best 3Q2006 performance.

In the next few years, African stock exchanges will move from being vehicles for the privatisation of state assets to being conventional equity marketplaces. Renaissance Capital calculates that the number of companies listed on sub-Saharan exchanges, other than the JSE, has grown from 66 in 2000 to 522 in 2007. In August 2007, Guaranty Trust Bank became the first African bank and first Nigerian company to list on the LSE. During the first seven months of 2007, more than US$ 2 billion was raised by private equity funds in the UK for investment in Africa.

In October 2007, Egypt announced plans to open the first Middle East exchange for small and medium companies.

In September 2006, the London Stock Exchange introduced its first 29 exchange traded commodity (ECM) vehicles. In October 2006, the NYSE introduced hybrid trading. InterContinental Exchange's volumes more than doubled after introduction of electronic oil futures trading.

In December 2006, Socgen launched the first Sharia compliant hedge fund. Only 50 to 260 Islamic scholars have enough knowledge of finance to approve Islamic banking products in which US$ 750 billion is already invested. In March 2007, Americans started investing in terrorism-free investment funds.

In October 2006, the US Commodity Futures Trading Commission reaffirmed its policy of letting certain foreign futures exchanges provide electronic trading in the USA.

In October 2007, Western Union and the GSM Association signed an agreement to provide customers with the ability to send and receive low-denomination, high-frequency money transfers using their mobile handsets. The service is aimed at cross-border remittances worth an estimated US$ 500 billion per year.

In November 2006, the Big Six accounting firms called for real time reporting. In November 2007, Mifid, the Markets in Financial Instruments Directive, took effect. In May 2007, the leaders of the USA, Germany and the European Commission agreed companies can use either GAAP or IFRS without having to reconcile the two.

In November 2006, EU stock exchanges agreed to sign a standard code of conduct. In November 2006, In August 2007, the EC announced it was to investigate credit rating agencies following their slow response to the subprime mortgage crisis. In June 2006 the German government announced plans to set up an agency to vet acquisitions by state-controlled foreign funds. In October 2007 the French government announced plans to make Paris more competitive as a financial centre.

In October 2006, John Thain, head of the NYSE, blamed Sarbanes-Oxley Section 104 compliance and audit rules; tort reform; regulatory overlap between US regulators; and lack of convergence between US and European accounting standards for loss of business to LSE and other exchanges. The UK Treasury has ring-fenced the London Stock Exchange from Sarbanes-Oxley type legislation in other countries. In October 2006, US inspectors raided the London offices of Ernst and Young as part of a requirement under the Sarbanes-Oxley Act.

US regulators agree to a single oversight organisation for the country's exchanges and brokers. In May 2007, the SEC announced plans to have all companies report financial information in XBRL format. In November 2007, the US Securities and Exchange Commission removed requirement for foreign companies with US listings to reconcile IFRS accounts with US standards. In December 2007, the expanded US GAAP taxonomy, which is used in XBRL, was released.

In August 2007, China announced it would allow individuals to buy securities in Hong Kong, giving them exposure to international markets for the first time.

Footnote: If you are aware of any highlights we have missed, please contact us with details.