The World Economic Forum (WEF) report on financial development index provided a wake up call to the reality as the United States and United Kingdom failed to retain their position in world ranking. The recent report on financial development index indicated that Hong Kong toppled U.S. to reach the pinnacle in the index.
The latest news comes amidst fear of the developed nations struggling to hold their nerves in world economic scenario even as the developing or emerging markets are slowly raising their heads and their importance will be felt very much in the years to come. The report also strengthens the views of a possible shift in power in a changing scenario.
Normally, the U.S. and the U.K. occupies the top two slots in the financial development index and it is for the first time that Hong Kong dethroned the two developed nations to come top with a score of 5.16. WEF's fourth annual Financial Development Report released on December 13 revealed this.
Though the U.S. slipped in the ranking, its overall score remained almost in tact for 2011 compared to previous year. A significant point made by the report is that the U.S. was able to offset the global financial stability weakness with strong financial intermediation results. Major strengths attributed to this was highly developed foreign exchange and derivatives markets besides the strong M&A and securitization activities.
But in the case of U.K., the country suffered a jolt in both the counts, i.e. ranking as well as scoring due to weaker score on securitization and IPO activity. The U.K. slipped in ranking to third, while the score for 2011 is 5.00.
Generally, there were not major changes among the rest of the top 10 in the latest year's ranking. Singapore slipped to fourth spot on account of securitiztion markets drying up besides a weakening banking system. However, Australia, Canada and the Netherlands retained their positions at 5th, 6th and 7th place respectively, while Japan an! d Switze rland swapped their positions in 8th and 9th place. Norway jumped into the top 10 due to a favorable change in strong IPO activity among other factors.
The WEF's Financial Development Reports concentrates on a set of long-term actions that will help the overall development of financial systems. The forum also analyzed 60 financial systems and capital markets worldwide to arrive at this ranking.
The forum's chief operating officer for USA Kevin Steinberg, commented, "While Western financial centers are understandably focused on short-term challenges, this Report should serve as a wake-up call that their long-term leadership may be in jeopardy."
Interestingly, 90 percent of the countries surveyed by WEF have not come back from pre-crisis levels in terms of access to capital. There was no respite from the challenges to finance economic growth especially on the back of weak access to credit and financing from local equity markets. This indicates that the financial turmoil inflicted a couple of years ago on the back of sub prime crisis, which percolated to a bigger crisis, is refusing to die down despite best efforts by global leaders. Unless the financial crisis is completely resolved, the economic development around the world will continue to have its effect either directly or indirectly.
The WEF summed up its fourth annual report by indicating that overall economic scenario has unfavorably affected the access to capital by firms, while not ruling out the corporate governance factor influencing the scenario. Also, the report found that corporate governance witnessed a downside during the last four years, whether it is developed or emerging economies. This indicates that corporate governance issues are worldwide and not restricted to advanced economies. But it will prove to be a major concern for the emerging markets as the region is expected to play a crucial role in future growth of economic development.
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