Tuesday, December 4, 2007

U.S. Share of Global Stocks Falls to 17-Year Low

From Bloomberg this morning:

The U.S. share of global stock-market capitalization fell to a 17-year low as faster-growing overseas exchanges lured more companies, a group of executives and academics backed by Treasury Secretary Henry Paulson said.

U.S. exchanges held 35 percent of worldwide equities by value as of September, down from 52 percent in 2001, the Committee on Capital Markets Regulation said in a report today. The group is led by former White House Economic Adviser Glenn Hubbard and ex-Goldman Sachs Group Inc. President John Thornton.

``On a scale of one to 10, with 10 where we need to be, I think we're at two right now,'' said committee director Hal Scott, a professor at Harvard Law School. If rules aren't changed, ``things are going to get worse.''

The appeal of U.S. stock markets has deteriorated significantly in recent years by ``any meaningful measure,'' the group said. Overall competitiveness declined from historical averages in 12 of 13 measures it used.

In a November 2006 report, the 24-member group recommended that policy makers overhaul securities regulation, including the Sarbanes-Oxley law passed after the collapse of Enron Corp. and WorldCom Inc. Lawmakers should limit liability for accountants, and the U.S. Justice Department should pursue indictments against companies only as a last resort, the group said.

Companies Leaving

The number of U.S.-based companies conducting initial public offerings only on overseas exchanges rose to 15 through September of this year, the group said. As recently as 2001, no U.S. company sold shares exclusively outside the country.

A growing number of international companies are leaving U.S. stock markets, the group said. A record 56 firms, or 12.4 percent of all foreign companies listed on U.S. exchanges, had left as of October, the report said. That compares with 30 delistings, or 6.6 percent of all foreign companies, in 2006.

The increase was likely related to the relaxation of rules by the U.S. Securities and Exchange Commission that previously made delisting more difficult, the group said.

``Some say this spike reflects a pent-up demand to leave and now will level off,'' the report said. ``That may be, but such a pent-up demand is itself a negative judgment on the value of using'' U.S. stock markets.

Not everyone agrees with the group's premise that regulation has been the main culprit. Nothing has damaged U.S. stock markets this year more than the failure by regulators to take measures to prevent the subprime-mortgage crisis, said Barbara Roper, director of investor protection at the Consumer Federation of America.

``It has been too little and too ineffective regulation that has hurt our markets,'' Roper said.

Paulson endorsed the independent panel's plan to study the competitiveness of U.S. capital markets when the committee was formed last year.

U.S. stock markets were valued at $17.8 trillion as of Dec. 2, or 29 percent of the global total, according to data compiled by Bloomberg. The value of Chinese equities tripled to $3.9 trillion from $1.3 trillion at the start of the year.

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