Moving towards the mainstream

Stock market development and performance
in the rapid-growth markets

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Key findings

  • In the last decade, the collective capitalization ratio of the emerging markets has been around 40% of GDP, compared with 20%–25% in the 1990s.
  • Since 2000, emerging markets’ share of global stock market capitalization has risen from 7% to around 30%. If this continues, by 2020 today’s emerging markets could account for almost half of total world equity capitalization.
  • Distribution of equity capital in the emerging world is uneven, with the BRICs, South Africa and South Korea accounting for around 70% of rapid-growth markets’ total equity capitalization.
  • Investors in emerging markets should be cautious: strong economic growth does not necessarily result in better equity returns.

Risk and return — the incredible growth of equity markets in emerging economies

The growth of stock markets in emerging nations has been one of international finance’s biggest stories.

The long-term returns of developing market equities have firmly outpaced those offered by developed markets. In addition, capitalization ratios — stock market capitalization as a share of GDP — in emerging economies have risen significantly in the last decade.

Developing stock markets were hit particularly hard by 2008’s financial crisis, but showed their resilience by bouncing back — today returns have nearly recovered to pre-crash levels.

Here we explore the expansion of emerging equity markets and look at how this remarkable progress relates to the broader economic growth these markets have enjoyed over the last 25 years.

We reveal a complex picture of strong markets that have given unrivaled returns to investors willing to risk high levels of volatility.

As developing nations’ equity markets become increasingly integrated with the developed world’s financial mechanisms, we look to a possible future where emerging markets are increasingly stable, but unable to offer the returns of a decade ago.1

1.In this paper, emerging markets (EMs) refers to all of the non-OECD countries. Rapid-growth markets (RGMs) refers to the 25 countries tracked for EY’s Rapid-Growth Markets Forecast.


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