EM Capital Markets Underdeveloped


    Capital markets in emerging economies have remained significantly underdeveloped relative to their powerhouse underlying economies, but will likely experience profound shifts over the next 15 years, with implications for debt and equity investors, says a report from Manulife Asset Management. ‘The Changing Shape of Capital Markets in Emerging Economies,’ a collaboration by Kathryn Langbridge, head of emerging markets equities, and Paolo Valle, co-head of emerging markets debt, says the balance of global economic power has shifted toward emerging economies, with these nations combined now accounting for 51 per cent of global output on a purchasing power parity basis. However, emerging markets account for only 22 per cent of total global equity market capitalization and just 14 per cent of both corporate and sovereign bond market value, respectively. This relatively stunted capital market growth is evolving fast and the report looks at ways investors may take advantage of the secular trends likely to dominate emerging market investing in the years ahead. On the supply side, it says increased political momentum behind structural reform and market liberalization measures in countries such as China are expected to lead to deeper capital markets in many emerging countries. This is likely to coincide with a massive increase in demand as household and government savings pools in these nations institutionalize.