The Total Investable Capital Market Portfolio

According to a report prepared by McKinsey in January 2007, World financial assets including bonds, stocks, corporate debt securities and bank deposits have expanded to more than $140 trillion, and at the present growth rate, they would reach $214 trillion by the end of the decade. Moreover, the report also highlights the increasing depth of financial markets in terms of availability of new instruments related to properties, commodities and others. Such deep financial markets promote a more efficient allocation of capital and risk among the various financial instruments available to investors; and they are beneficial because they create liquidity, offer more choice for investment, efficient pricing of instruments, and increased opportunities to share risk for better returns.

One important dimension to measure the development of financial markets in terms of depth is the value of financial assets expressed as percentage of GDP. The measurement, most of times, is in multiples of GDP because the financial depth represents the future returns and growth along with the current development activity. In 1980, the global financial markets were almost equal to the value of world GDP, and in 1993, the value doubled the size of world GDP. Based on latest estimation this is more than three times of the world GDP. The US, the UK, Europe and Japan account for 80 percent of the overall financial market capitalization in which the US remains the largest financial market. Asian financial markets remained different in terms of maturity of financial markets where Japan has a very large market for government securities and China has three fourth of its financial assets in the form of Bank deposits, while India remains a balanced destination for various kinds of financial instruments available for investment.