Rise of globalisation could 'stall' after $30 trillion slump
Plunging property values mean the rally in equities has barely helped heal the wealth destruction over the last 18 months, according to research by McKinsey, which said the 30-year rise of financial globalisation "may now stall".
Global financial assets have fallen $28.8 trillion in value since the start of 2008 from a record of $194 trillion at the end of 2007, according to the research, which was conducted by the management consultancy's think-tank, the McKinsey Global Institute.
The value of property assets fell $3.4 trillion last year and dropped an additional $2 trillion in the first half of the year. Equities values have rebounded by $4.6 trillion since March.
The research, which was written by six authors that included financial services practice director Charles Roxburgh and director of research Susan Lund, said the financial crisis wreaked havoc on cross border capital flows, which dropped 82% in 2008 to $1.9 trillion.
This drop "raised questions about whether financial globalisation will continue," the research said. It added that it was uncertain when banks would regain an appetite for cross-border expansion and that "the 30-year rise of financial globalisation may now stall".
The research's other findings included the following (all figures for year to end of 2008, unless indicated):
- Given the decline in asset values and growth in debt, leverage in the global economy has increased during the financial crisis rather than declined. In aggregate, the global debt-to-equity ratio nearly doubled, jumping from 124 percent in 2007 to 244 percent by the end of 2008
- About 40% of the decline in cross border flows was due to the drying up of interbank lending after the collapse of Lehman Brothers
- Private debt was flat, but government debt grew
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