Financial Capital Cities in a Generation or Two

History is full of the ascendance and deterioration of financial capital cities.  Although weakened over the past 10 years, the United States still reigns as the financial capital of the world , with businesses in New York and Chicago providing the largest amount of financial intermediary services within the United States.

Rank	Financial Capital	Financial Capital Rating
1	London	785
2	New York City	765
3	Hong Kong	733
4	Singapore	725
5	Zurich	691
6	Seoul	685
7	Tokyo	684
8	Chicago	683
9	Geneva	682
10	Toronto	681
Source: City of London Corporation’s Global Financial Centres Index

 

According to the City of London Corporation’s Global Financial Centres Index, London ranks the highest as the strongest financial capital, followed by New York, Hong Kong, Singapore, and Zurich.  The United States is the only country with two financial capitals, with Chicago ranked eighth.

Rank	Financial Capital	Financial Capital Rating
1	New York City	88.4
2	London	87.7
3	Tokyo	85.6
4	Hong Kong	81.0
5	Paris	72.8
6	Singapore	70.1
7	Frankfurt	64.4
8	Shanghai	63.8
9	Washington, D.C.	61.1
10	Sydney	59.5
Source: Xinhua-Dow Jones International Financial Centers Development Index

 

A competing index, the Xinhua-Dow Jones International Financial Centers Development Index ranks New York City first as the strongest financial capital, followed by London, Tokyo, Hong Kong, and Paris.

Some of the cities mentioned, and therefore countries, won’t be a financial capital in one or two generations, and some others will replace the status losers as financial capitals.

The above map relates to market capitalization (in U.S. dollars) by country. The question is: based upon current trends, which of these cities will continue as global financial capitals after the coming two generations and which may lose their status as a top 10 financial capital?

One way to answer this financial capital question is to look at how quickly market capitalization within the world’s nations have grown in comparison with each other.  The results of that analysis are given in the following map.

Overall, market capitalization in Columbia has grown the fastest from 1990 to 2011, followed by Peru, Brazil, Bangladesh, Morocco, and Indonesia.  Of these, financial markets sourced to Rio de Janeiro certainly have the possibility of being a financial capital within a generation.  Within two generations, such cities as Jakarta (Indonesia) and Dhaka (Bangladesh) are possibilities given overall economic growth or geographic connection with economic powerhouses.

On the opposite end, Venezuela, Japan, United Kingdom, Greece, Italy, and Germany have experienced the slowest increases in market capitalization growth, with Venezuela the only country with a decrease in financial market capitalization.  A couple of these countries are on my list of “on the edge” top 10 financial capitals.

It’s generally easier to achieve a higher growth rate if market capitalization was small to begin with.  Because of this, it’s important to look at absolute growth in market capitalization.  The results are given in the following chart.

 

When looking at the market according to this measure, market capitalization within the United States continues to be the leader, with businesses market capitalization growth over six times greater than the businesses within the next close country, Canada.  In shortening the horizon to the past 10 years (i.e. since passage of Sarbanes-Oxley), the United States doesn’t look so dominant, with Chinese listed businesses being the top market capitalization gainers.

So, with this market capitalization background in mind, businesses within which countries having the highest probability of gaining a top 10 financial capital ranking at the expense of businesses located within which countries?  Well, my guess is that businesses in Seoul, Chicago, Paris, Sydney, Frankfurt, Geneva, and Toronto have the greatest risk of losing their top 10 financial capital status, being replaced with the ascendance of financial capital cities located in Brazil, China (Shanghai), an Indian financial capital, and an African financial center in Morocco or South Africa.