Goldman Sachs Global Economics, Commodities and Strategy Research

EM Equity in Two Decades: A Changing Landscape

Significant shifts in global equity markets: Over the next two decades, emerging

equity market capitalization could increase substantially in absolute terms and

overtake developed markets. The primary drivers are rapid economic growth and

capital market deepening. China may exceed the US in market cap terms by 2030.

The EM landscape in two decades: Emerging equity cap could rise from $14tr to

$37tr in 2020 and $80tr by 2030, bringing the EM share of global equity cap from 31%

to 44% and 55% by these respective dates. The EM weight in the MSCI AC World

index may also increase from 13% to 19% and 31% by 2020 and 2030. The BRICs’

share of world equity cap may be 30% by 2020 and 41% by 2030 vs. 18% now. For the

N-11, the share could rise to 6% in 2030, from 5% now.

DM savings pools will need to own more EM: We estimate that developed market

institutional asset managers currently hold 6% in EM equities within their total equity

portfolio. This weighting may rise to 18% by 2030, implying net purchases of $4tr. The

institutionalization of EM savings pools will also gather pace; this may help dampen

EM equity volatility and valuation swings.

EM opportunities and challenges: EM equities offer investors attractive potential

returns, but will require a greater allocation of business resources. Financial

intermediaries have substantial revenue opportunities, but will need to localize

further; operating costs and competitive pressures will rise.

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