The rising power of hedge funds and private equity investment, continued sharp competition among Wall Street firms, and growth in China and India are the key drivers of global finance today, according to industry leaders at a recent Wharton Finance Conference whose theme was From Wall Street to Beijing: Thriving in a Changing Environment.
Speakers on one of the conference panels, entitled Financing Growth in Expanding Markets, noted that privatization and rapid growth in Asia and India, along with structural change in Latin America, are creating strong capital markets in emerging economies. These local markets are increasingly taking a role in capital formation at the expense of Wall Street. “Throughout the 1980s, the U.S. was the driver of the world economy, and the world focused on exporting to it. The reality is that in the last two, three or four years the real growth engines are India and China,” with Japan now beginning to emerge as well, said James R. Birle, Jr., managing director and head of global equity capital markets at Merrill Lynch.
Birle noted that most capital raised for investment in China used to go to state-owned firms, but now private Chinese companies are also drawing support from investors around the world. In addition, Chinese companies seeking to go public or raise additional capital are bypassing Wall Street and turning to capital markets in Hong Kong or elsewhere. “There is enough liquidity in the local market. They don’t need to come to the U.S. to list on the New York Stock Exchange,” he said, adding that requirements of Sarbanes-Oxley legislation, which improved the transparency of corporate accounting following the scandals at Enron and other U.S. firms, also make Wall Street less attractive to Chinese companies looking for investment. “Another issue is the litigious nature of the U.S.,” he continued. “A Chinese company will say, ‘Why come here if I don’t have to?’”
Birle sees little worry that speculative “hot money” will drive the Chinese economy into a bubble.
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