Institutions Significantly Shift to Global Equity Markets

(September 10, 2010) — According to new research from Goldman Sachs, pension funds and other institutional investors based in developed markets could increase their emerging market equity weightings to 18% in the next 20 years from the current level of 6%.

“Over the next two decades, the emerging equity markets are likely to increase substantially in absolute terms and overtake developed markets in terms of capitalization,” the authors wrote. “The primary drivers are rapid economic growth and the maturing of equity markets that are at earlier stages of development.” The authors note that China might surpass the US in equity market capitalization terms by 2030 and become the single largest equity market in the world. According to Goldman’s research, China’s market cap of mainland- and Hong Kong-listed equities could rise to $41 trillion, or a 28% share of global equity, by 2030 from $5 trillion, or a 11% share. In contrast, the US equity market could rise more slowly to $34 trillion, or a 23% share of global equity, in 20 years from $14 trillion, or a 32% share, now, they write.

The 48-page report, titled “EM Equity in Two Decades: A Changing Landscape,” stated that by 2030, emerging markets equity capitalization could rise to $80 trillion, or a 55% share of global equity. Meanwhile, developed markets could rise to $66 trillion, or a 45% share of global equity. The authors estimate that the overall global equity market would rise to $146 trillion by 2030, compared to its present value of $44 trillion — 69%, or $30 trillion, from developed markets and 31%, or $14 trillion, from emerging markets.