Voth Nixon Group Releases Report on ‘The Shifting Form of Capital Markets’
Emerging economies capital markets predicted to steadily develop over the next decade.
[UKPRwire, Fri Jan 15 2016] According to a recent Voth Nixon Group report, capital markets within emerging economies have stayed considerably undeveloped in comparison to their stronger fundamental economies, however they are anticipated to experience significant changes over the next decade, with major implications for equity and also debt investors.
The report notes that the balance of international economic power has moved towards emerging economies, with these countries amounting to 51% of international turnout based on purchasing power parity. On the other hand, emerging market economies represent merely 21% of the entire international equity market capitalization and only 15% of bond market value, for corporate as well as sovereign bonds. However this somewhat minute capital market development is growing rapidly and the Voth Nixon Group report seeks to identify avenues for investors to take full advantage of the secular tendencies that are prone to prevail in the emerging market investment landscape for years to come.
In terms of supply the report outlines that the elevated political momentum caused by structural reforms as well as market liberalization procedures in states such as The People’s Republic of China are likely to lead to deeper capital markets in the case of many emerging economies. This is expected to correspond with a significant growth in demand as domestic and government saving funds in such countries will institutionalize. As a result of this the report’s authors anticipate important shifts in the structure of emerging market indices over the next decade.
The report notes The People’s Republic of China as a primary example. In the case of emerging market economies, both domestic and government equity ownership is reduced from a structural stand point. Point in case, while more than half of domestic wealth in America is kept in the stock market, China, which has a savings rate of 46%, has a stock market involvement level of just 7%. It is however important to note that the Chinese markets are liberalizing, with the launch of the Shanghai – Hong Kong Stock Connect program representing an important step forward on the path of worldwide integration of the Chinese capital markets by immediately allowing direct foreign access to its local equity market.
The index adjustments to China’s stock market are also probable to have an impact. In this sense the weighting of China’s new service sector economy (also known as ‘New China’) is predicted to double and become almost a third of the total index. It is therefore very likely that this event will have a definite impact pertaining to investment flows with possible implications for the size of the country’s complete index, as the changes to its composition will most probably attract more foreign investors.
The authors conclude that the developing integration of global markets is likely to determine improve coordination, superior governance, increasing liquidity and eventually lower funding costs for emergent enterprises.
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