The world's capital markets now enjoy unprecedented breadth and strength. Financial institutions routinely move trillions of dollars of assets—stocks, bonds, and other instruments—around the globe. Cross-border capital flows and foreign holdings of financial assets continue to grow rapidly, linking individual financial markets into an increasingly integrated global one.

Executives who seek to raise money, institutions hoping to shape the global capital market, and policy makers who regulate it must all understand its evolution. The McKinsey Global Institute (MGI) has conducted a yearlong research effort¹ on the world's financial markets and created a comprehensive database of the financial assets of more than 100 countries since 1980. Together, these assets make up the global financial stock.

This research yielded several notable observations. One of them is simply that global capital markets are huge: we calculate that the world's financial assets now total more than $118 trillion and will exceed $200 trillion by 2010 if current trends persist. The stock of global financial assets has grown faster than the world's GDP, indicating that financial markets are becoming deeper and more liquid. With a few qualifications, this trend bodes well for the world's economies, since deeper markets provide better access to capital and improve the allocation of risk.

Much of the growth in global financial assets comes from a rapid expansion of corporate and government debt, with all of the attendant benefits and risks. Last, the roles that major countries and regions play in capital markets are changing. The United States has the largest of them, which attracts foreign issuers and investors alike. European markets are becoming more integrated, however, and gaining in market share and depth. Meanwhile, Japan's role in global capital markets is diminishing and China has become a new force.