Emerging capital markets set to double

Emerging markets driven by accelerating growth in capital raising activities are set to double their global index share by 2030, with China overtaking the UK and Japan to become the world’s second largest equity market, according to Credit Suisse. 

The Credit Suisse Research Institute has forecasted emerging nation capital markets, over the next 15 years, will capture a more proportionate share of the global capital market universe relative to their economies, closing the gap with their developed peers. 

Currently, emerging country capital markets remain underdeveloped relative to the size of their economies accounting for only 22 per cent of global equity market capitalisation however, Credit Suisse has forecasted that by 2030, this will increase to 39 per cent. 

According to the research, mainstream emerging nations have, for the most part, more than adequately established the necessary legal, reporting, governance and financial institutions and infrastructure, to successfully grow their capital markets and effectively cater to the demanding financing requirements of their expanding economies. 

“The disparity between developed and emerging nations in the global capital market universe will close by 2030,” Credit Suisse global head of equity research, Stefano Natella said. 

“This should be driven by a disproportionately large contribution from emerging market equity and corporate bond supply and demand driven by growth in domestic mutual, pension and insurance funds, given the relatively high savings ratios prevalent among emerging economies.   

“Moreover, the growing ability of Emerging Market corporates to access local currency capital markets shields them from the risk of exposure to unforeseen exchange-rate volatility,” Natella said. 

Emerging markets may retain their aggregate equity skew toward resources, given their collective characteristic as a net commodity exporter; however, over the duration out to 2030, there will likely be a normalisation toward more under-represented industry sectors relative to the developed world, particularly healthcare, industrials and consumer discretionary, the report said. 

The research also forecasted that China’s equity market will overtake the UK and Japan in 2030 to become the second largest market with a USD 54 trillion capitalisation and a weight of 19 per cent, while the US will remain the largest equity market with a USD 98 trillion capitalisation trillion and a weight of 35 per cent.  

The forecast is based on the assumption that China’s capital account liberalises over the next 17 years, giving foreign investors access to the A-share market, the research said.