As the rise of emerging markets, there is an increasing number of investors tend to focus on emerging stock markets for further investors. However, the characteristics of stock markets in emerging economies sometime can be different from that in developed countries.
Strong equity capitalization increase in emerging markets
As shown in figure 1, emerging markets (EM) in developing countries have gone through a rapid speed growth in last 20 years. In 1990 the market capitalization-to-GDP ratio for EM was approximately in the range of 20% to 25%. While 16 years later, in 2006 the ratio was more than double which steadily climbed up to nearly 50%. At the end of 2007, due to the effect of global financial crisis, the data was sharply declined to 30% which could be a correction of EM share price. The GFC influence gradually recovered from 2010 to 2012 which was fluctuated at 40%.
The whole emerging market stock market capitalization was in a booming period from 1990 to 2010. The speed was even faster which started at 10% in 1990, then rapidly grew to approximately 30% in 2010.
For future prediction, at the end of 2030 the total EM capitalization could account for half of the world market capitalization. In reality, there is a tendency that the EM capitalization could grow more swiftly: the data of a country’s capitalization to GDP tends to rise as markets develop because there is increased equity issuance and a greater number of initial public offerings (IPOs). If this is true, probably in 2020 the EM capitalization could be nearly half of the world equity market capitalization.
Emerging market growing faster than developed markets
In recent years, emerging markets were growing in an astonishing speed compare to developed markets. According to the figure, since the stock return data was available in 1987, the EM Index was growing much faster than the World Index. The world index was fluctuated between 100 to 400 in nearly 20 years. EM showed a different picture, it increased from 100 in 1987 to approximately 500 in 1997,