28.Goldman forecasts emerging equities bonanza By Stefan Wagstyl in London

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Emerging Markets

Goldman forecasts emerging equities bonanza

By Stefan Wagstyl in London

Published: September 8 2010 18:32 | Last updated: September 8 2010 18:32

China could overtake the US in terms of stock market capitalisation by 2030 as the market value of equities in emerging nations soars, powered byexpanding investment and by economic growth, says a report by Goldman Sachs.

In a bullish view of the next two decades, the US investment bank sees the value of the globe’s emerging stock markets rising fivefold to $80,000bn from $14,000bn (in constant US dollars) today, taking the emerging market share of global equity markets from 31 per cent to 55 per cent.

The Bric countries – Brazil, Russia, India and China – may see their share rise to 41 per cent, a number which highlights their dominant role in the rise of the emerging world, at least in financial terms.

China alone could see its stock market’s share of global equity valuations to increase from 1 per cent 10 years ago and 11 per cent today to 28 per cent in the next two decades.

By 2030, the top three stock markets in order could be China, the US, India, with Japan and Brazil sharing fourth place. Russia could be sixth, ahead of the UK, France and Germany.

The projections are based largely on the long-term extension of past trends, which have, for example, seen emerging nation stock market valuation increase sixfold in the last 15 years. The authors said they are “fully aware of the uncertainty surrounding long-term forecasts” but they think “setting out logically reasonable estimates” helps investors to plan ahead.

“The primary drivers are rapid economic growth and the maturing of equity markets that are at earlier stages of development,” said the report published on Wednesday. “Developed market institutional asset management pools will need to increase their holdings of emerging market equities.”

Goldman said developed-country investment funds, which now hold about 6 per cent of their assets in emerging market equities, could increase the allocation to 10 per cent by 2020 and 18 per cent by 2030. With their total assets growing, this could translate into $4,000bn in emerging market equity purchases over 20 years.

Meanwhile, growing savings pools in emerging markets may bring greater stability to emerging nation financial markets – a big plus for all investors.

Financial intermediaries are likely to see big profit opportunities as these developments gather pace, with $420bn in revenues predicted just from primary issuance and secondary market commissions, said Goldman. Revenues from derivatives and so forth could “increase this figure significantly”.

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