London is the Silicon Valley of finance — for now

London is the Silicon Valley of finance — for now

For London’s brokers and bankers, it now seems a given that they inhabit the financial capital of the world. New York is regarded almost with condescension. It is still big and powerful, but parochial. It is no longer where the action is.
But such talk makes Tony Jackson feel uneasy. Think back to the late 1980s, he says in his On Monday column in the FT, when the Japanese stock market was twice the size of America’s — and remember what happened next.
But the real issue now, for both London and New York, is whether, in the future, the world will actually have a financial capital at all.
London has two huge natural advantages - its time zone and the universal language of English. Hence the fact that for decades it has dominated the world’s foreign exchange trade. Now that global equities are almost as fungible as currencies, London is getting a corresponding grip of the new-issue market. Here as elsewhere, its role as intermediary can only be helped by the rise of China. And all the while, it is establishing itself as a magnet for global talent - the Silicon Valley of finance.
Things could go wrong, such as the global tide of liquidity drying up. But the long-run trend looks unstoppable.
One big reason is the continuing march of privatisation. The more enterprises are sold off in Russia, China and India, the more liquid capital is drawn to those countries and the more local expertise is created in managing it.
One powerful illustration of this is the share that the developed economies hold in the world’s stock of quoted equity. Thirty years ago, the big five markets - the US, Japan, the UK, Germany and France - between them accounted for 90 per cent of the world by value. The figure is now 64 per cent and falling steeply.
For London to imagine it has inherited New York’s former power is an illusion. That power is being distributed around the world. London’s best hope is to hang on to its share.