The Fragmentation of Global Capital Markets
Three decades of globalisation produced a deeply integrated global capital market. The next decade will produce something more fractured — and more interesting.
The presumption that global capital markets would continue to integrate indefinitely was, with hindsight, a peculiarly post-Cold War view. The fragmentation now under way reflects political and regulatory choices that have been building for years.
The most visible symptom is the gradual divergence of regulatory frameworks. Basel, IFRS, accounting standards and securities regulation are all examples where harmonisation has begun to give way to regional implementation differences.
The capital allocation consequences are real. Cross-border M&A flows are a smaller share of total transaction volume than at any point since 2003. Emerging market sovereign issuance is increasingly being placed locally, in local currency, with local investors.
The implications are not uniformly negative. A more fragmented system is, in some respects, a more resilient one — and the local-currency, local-investor model that has emerged in Asian and Gulf markets is producing financing structures that are genuinely innovative.
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