Christians believe that the poor will eventually inherit the kingdom of heaven. Recent financial headlines might suggest that they will be taking over the earth, or at least its equity markets, long before that happy day.
Russia’s Norilsk has outbid London-listed Xstrata in an auction for the Canadian LionOre. Dubai Financial International Centre is rumoured to be interested in OMX, the Nordic exchange group. Oil exporters, poor and middle income alike, have bought big stakes in rich-country companies such as Eads, HSBC and Deutsche Bank. And China is set to put $200 billion (Rs8.2 trillion) or so into foreign equities.
Thanks to the huge US trade deficit and the high price of commodities, relatively poor countries are collecting dollars much faster than they can or want to spend them at home. China is afraid that a bigger import bill will push up its currency, destroying jobs. Russia and other commodity exporters don’t want to make domestic commitments that will be unaffordable when prices fall. All in all, the surplus dollar flow comes to about $500 billion a year, according to Morgan Stanley.
That’s certainly enough money to change the world’s financial balance. It’s the equivalent of 15% of the total global value of the mergers and acquisitions market in 2006. But up to now, almost all of the surplus has gone into US government bonds.
The demand has pushed down long-term interest rates by one percentage point, according to Barclays Capital. With equities taking a bigger role, funds or companies from the developing world will be rich enough to play in pretty much any takeover situation.
But while half a trillion dollars of annual cashflow makes a difference on the financial margin, it isn’t a big number in comparison with the global stock of financial assets. It is only 1.2% of the value of equity markets in developed countries, according to Datastream. Counting in takeover premiums, it would take a century for the poor to buy up all the rich country companies, at current market values. Of course, if current growth trends continue, today’s poor countries will be rich long before 2107.