Credit Suisse predicts that emerging capital markets are likely to double their share of global indices by 2030, with China overtaking the UK and Japan to become the second largest equity market.

Credit Suisse predicts that emerging capital markets are likely to double their share of global indices by 2030, with China overtaking the UK and Japan to become the second largest equity market.

The predictions are made in Credit Suisse Research Institute’s “Emerging Capital Markets: The Road to 2030” report.

 Although capital-raising activity has expanded rapidly over the past 20 years, the report said, emerging capital markets are still relatively small compared to the size of their economies. Emerging countries account for 39 per cent of global output – or 51 per cent in purchasing power parity terms – but the 20 emerging nations account for less half of their share of the capital market universe. They make up 22 per cent of global equity market capitalisation and 14 per cent of the global and sovereign debt markets.

The Zurich-listed bank reckons that the equity share of global equity cap will rise to 39 per cent and corporate and sovereign bonds will rise to 36 per cent and 27 per cent respectively, about double from where they are today.

“The disparity between developed and emerging nations in the global capital market universe will close by 2030. This should be driven by a disproportionately large contribution from emerging market equity and corporate bond supply and demand driven by growth in domestic mutual, pension and insurance funds, given the relatively high savings ratios prevalent among emerging economies,” Stefano Natella, Global Head of Equity Research, Investment Banking, at Credit Suisse in New York, said.

The bank reckons the fastest 17-year nominal US dollar compound annual growth rate in market value of any asset class will be emerging market equities and corporate bonds, at 13 per cent, followed by emerging market sovereign bonds at 8 per cent, doubling the growth pace of their developed peers. The bank forecasts growth in developed market equities, corporate and sovereign bonds to slow down at a pace of 7 per cent, 5 per cent and 3 per cent, respectively.

The market value for emerging equities, corporate and sovereign bonds increases by $98 trillion, $47 trillion and $17 trillion, respectively, in nominal dollar terms between 2014 and 2030.

China
While the US will remain the largest equity market in 2030 with a capitalization of $98 trillion and a weight of 35 per cent, China will overtake both the UK and Japan to become the second largest market with a $54 trillion capitalisation and a weight of 19 per cent.

Cumulatively China has accounted for 40 per cent ($639 billion) of the total emerging world equity capital markets deal value (initial public offerings and secondary public offerings) since 2000.

Credit Suisse also forecasts China's dominance of corporate bond market deal value in emerging markets over the last 14 years (a 37 per cent share or $1.6 trillion of the total) will persist, eventually taking a 53 per cent share (or $18.4 trillion) of total emerging market primary activity by 2030.