Moving toward the mainstream: Stock market development and performance in the rapid-growth markets

The growth of stock markets in emerging nations has been one of international finance’s biggest stories.

The long-term returns of developing market equities have firmly outpaced those offered by developed markets. In addition, capitalization ratios — stock market capitalization as a share of GDP — in emerging economies have risen significantly in the last decade.

Developing stock markets were hit particularly hard by 2008’s financial crisis, but showed their resilience by bouncing back. Today, returns have nearly recovered to pre-crash levels.

We explore the expansion of emerging equity markets and look at how this remarkable progress relates to the broader economic growth these markets have enjoyed over the last 25 years.

As developing nations’ equity markets become increasingly integrated with the developed world’s financial mechanisms, we look to a possible future where emerging markets are increasingly stable, but unable to offer the returns of a decade ago.

Key findings

  • In the last decade, the collective capitalization ratio of the emerging markets has been around 40% of GDP, compared with 20%–25% in the 1990s.
  • Since 2000, emerging markets’ share of global stock market capitalization has risen from 7% to around 30%. If this continues, by 2020 today’s emerging markets could account for almost half of total world equity capitalization.
  • Distribution of equity capital in the emerging world is uneven. The BRICs, South Africa and South Korea account for around 70% of rapid-growth markets’ total equity capitalization.
  • Investors in emerging markets should be cautious. Strong economic growth does not necessarily result in better equity returns.

pdf- Download: Stock market performance in rapid-growth markets as a printable document