[Marxism] A quick look at some international investment trends

Jurriaan Bendien andromeda246 at hetnet.nl
Sat Jun 12 15:00:56 MDT 2004


According to the Tass database, there are now something like 3,600 discrete
hedge fund companies, said to have an average rate of return of 10.7%, but
researchers at Amsterdam Free University established an average real net
rate of return of 6.4% during 1997-2002 (cf. "A reality check on hedge fund
returns" by Nolke Posthuma and Pieter Jelle van der Sluis. Amsterdam : Vrije
Universiteit, 2003; Het Parool, 5 June 2004, p. 34). In round figures, the
magnitudes of capital tied up in the world's hedgefunds are estimated as
follows:

1990 - 600 hedge funds worth 20 billion
2001 - 3,000 hedge funds worth ) 0.45 trillion
2004 - 7,000 hedge funds worth 0.9 trillion
2005 - 9,000 hedge funds worth 1.1 trillion (estimate)

This would imply a world profit income from hedgefund capital of around
US$70 billion a year. For comparison, annual world GDP  is now about $33
trillion or so.

There is a lot of bonding going on, but not just between people, also of
capital. US capital flows data suggests the volume of cross-border flows of
capital invested in bonds has exceeded the trade in equities by about 3
times, average 8.6 trillion a year during the 1990s. The total market value
of the world's bond markets is thought to be about 50% larger than the
world's equity markets. Most issues are denominated in U.S. dollars,
Japanese Yen are second, followed by Deutschmarks in a distant third, and
about half of the placements are government bonds. In 2001, for example,
there was a world bond capital of $0.9 trillion in Yen, $5.8 trillion in
Euro's, and perhaps $17.6 trillion in US dollars.

The US share of world bond market is about half, as against a fifth for
Euroland, a sixth for Japan, and the UK 3%. Between three-fifths and
two-thirds of US bonds are held by insurance companies, mutual funds,
pension funds and financial institutions. Bonds represented about half of EU
and UK government debt, compared to just over a third in the US, and a third
in Japan (see for example  www.ecb.int/home/conf/opf/papers/6b.pdf
www.imf.org/External/Pubs/FT/GFSR/2002/03/pdf/chp4.pdf  and
http://pluto.mscc.huji.ac.il/~mswiener/teaching/FIEMBAF02/WorldBondMarket.pd
f).

The size of the world bond market is said to have developed as follows, in
approximate figures:

1996 $11 trillion
1999 $30 trillion
2000 $32 trillion
2001 $33 trillion (BIS estimate $37 trillion)
2004 about $40 trillion (own estimate)

In other words, since the mid-1990s, the amount of capital invested in
bonds, has at least trebled and probably quadrupled. Assume as example that
the average bond yield is 4%, then this implies a profit income of $1.4
trillion by bondholders these days. Does the burgeoning bond market lead to
real increases in productive fixed investment, which is central to
cumulative growth in production, and consequently employment ? No, it's
really more the opposite, investment in bonds tends to be an alternative to
productive fixed investment in response to increased risk perceptions,
excess capacity and lower profitability in productive, employment generating
investment. The growth area in the 1990s was the information economy, but
typically that implies comparatively less fixed capital investment by
enterprises. The "excess capital" situation in the major industrialised
countries (lower profitability in real production) persists. The OECD
suggests growth rates in real gross fixed capital formation (including
government investment, private investment and owner-occupied housing) as
follows:

United States:

2003   8.0%
2004   2.9%
2005  3.0%

European Union

2003     0.4%
2004     2.4 %
2005     2.4 %

Japan

2003   -1.9 %
2004    -1.4 %
2005    -2.0 %

Jurriaan








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