Emerging-market stocks may see more than a five-fold increase in their market value to US$80 trillion in 20 years, surpassing developed countries, as China becomes the largest stock market in the world, said Goldman Sachs Group Inc.
Emerging countries’ share of world equity capitalisation may climb 55 percent by 2030 from 31 percent this year, driven by growing capital markets and faster economic expansion, according to a research report by Goldman strategists headed by Timothy Moe.
Institutional investors in developed countries will likely buy a net US$4 trillion of emerging-market equities, which will raise holdings to 18 percent of their entire portfolios from the current 6 percent, Mr. Moe wrote.
“The primary drivers are rapid economic growth and the maturing of equity markets that are at earlier stages of development. Developed-market institutional asset management pools will need to increase their holdings of emerging-market equities.”
Since the start of 2000, the MSCI Emerging Markets has increased more than twice, even as the MSCI World Index of advanced-nation shares saw a decline of about 21 percent.
The International Monetary Fund (IMF) has forecasted that emerging economies will grow 6.4 percent as a group in 2011, compared with 2.4 percent in developed countries.
According to research company EPFR Global, prospects for faster growth prompted investors to add money to equity funds of emerging markets for a 14th consecutive week even as they pulled US$6.87 billion from global stock funds.
The 21-country MSCI emerging gauge has seen a 1.2 percent growth this year, while the MSCI World index fell 4.2 percent amidst concern that spending reductions by indebted governments and stagnant jobs growth will hinder economic recoveries in Europe and the US.
Based on data compiled by Bloomberg, the emerging gauge is valued at 14.2 times reported profits, compared with MSCI World that trades for 15.1 times earnings.
The MSCI China Index of Hong Kong-traded shares has dropped 3.4 percent in 2010, while the Shanghai Composite Index has fallen 18 percent. Mr. Moe wrote that Chinese shares’ market value may grow to US$41 trillion by 2030 from US$5 trillion, exceeding the US$5 trillion forecast for the US.
“Emerging equity market capitalisation could increase substantially,” said Mr. Moe. “Investors, financial intermediaries and developed-market corporates will have significant opportunities as well as challenges from these shifts in the equity landscape.”