Hong Kong Tops The World Economic Forum's 4th Annual Financial Development Report

14 Dec 2011

Hong Kong SAR overtakes the United States and the United Kingdom to top the World Economic Forum’s fourth annual Financial Development Report.

Hong Kong SAR overtakes the United States and the United Kingdom to top the World Economic Forum’s fourth annual Financial Development Report released today. As the first Asian financial centre to achieve this rank, Hong Kong’s position was bolstered by strong scores in non-banking financial services such as IPO activity and insurance.

"Hong Kong's ascent to the top of our Index marks a major milestone, the first time in the Report’s history that the United Kingdom or the US didn't come out on top," explained Kevin Steinberg, Chief Operating Officer, World Economic Forum USA. "While Western financial centres 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."

Although it fell one spot to 2nd place, the United States’ overall score remains almost unchanged compared to last year. While financial stability continues to be a concern, the US was able to offset this weakness with strong financial intermediation results. The United Kingdom declined in both score and rank, placing 3rd overall. The greatest contributing factors to the United Kingdom’s decline are lower scores on securitization and IPO activity.  

The results remained relatively stable among the rest of the top 10 in this year’s Report. Singapore’s decline to 4th place is a result of the securitization markets drying up and a weakening banking system. Australia, Canada and the Netherlands maintained their positions at 5th, 6th and 7th place, respectively. Japan and Switzerland traded spots in the rankings to place 8th and 9th overall. Norway jumped into the top 10 because of a positive change in strong IPO activity among other factors.

The Financial Development Report focuses on a set of long-term measures to support the overall development of financial systems. Rather, it aims to serve decision-makers in developing a balanced perspective as to which aspects of their country’s financial system are most important in the long term, and empirically calibrate this view relative to other countries.

Looking at commercial access scores in particular (which the Index measures as ease of access to credit and loans, venture capital availability and financing through local equity markets), a four-year comparison (2008-2011) of the scores reveals that over 90% of countries have not yet returned to pre-crisis levels.

“The need to make different forms of capital available will be essential for future growth and recovery,” said Isabella Reuttner, Senior Project Manager at the World Economic Forum and editor of the report. “The challenge will be how to encourage economic activity while not fuelling the next credit bubble, which could cause severe consequences down the line. Therefore, when looking for possible solutions, decision-makers should not lose sight of the long-term consequences while they fix the short-term situation.”

It is apparent that the overall economic situation has impacted the ability of firms to access capital. However, this is also influenced by other factors such as corporate governance. The Financial Development Index’s results on corporate governance also see an overall decline over the past four years (2008-2011). This equally applies to both advanced and emerging economies, suggesting that perceived corporate governance issues are global rather than contained to advanced economies, and potentially of significant concern given the important role that emerging economies are expected to play in future economic growth.

The Financial Development Report ranks 60 of the world’s leading financial systems and capital markets. It analyses the drivers of financial system development in advanced and emerging economies to serve as a tool for countries to benchmark themselves and establish priorities for reform. The rankings are based on over 120 variables spanning institutional and business environments, financial stability, and size and depth of capital markets, among other factors.