Emerging market equities, corporate bonds and sovereign debt markets are underdeveloped relative to the size of emerging economies. EM equities account for only 22% of global equity market capitalization while corporate and sovereign bonds each account for only a 14% share of global market values (Exhibit 1). Yet, emerging nations produce 39% of global output.
This gap between global output and EM asset ownership levels should gradually close. Increased demand from domestic investment vehicles such as mutual and pension funds will help these economies increase investment in local capital markets by reallocating from overly high levels of domestic savings. By 2030, EM equities and corporate bonds are estimated to more accurately reflect emerging economy global output.
Exhibit 1: Emerging market share of global equity and sovereign and corporate bond markets (%)
Source: Credit Suisse
This convergence, however, does not imply equal growth rates across countries and industries. Under-represented sectors such as health care, technology and consumer discretionary are poised to gain share as are underdeveloped capital markets such as China, India, Vietnam and Turkey. We continue to look for companies positioned to capitalize on these long-term trends.
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