Just think, as emerging markets companies grow bigger, and thanks to the last couple of financial crisis, emerging markets have made more inroads into that equation. The other factor is the recycling of petrodollar and massive trade surpluses - much of that went into buying big banks and mining firms.
It is foreseeable within the next 10 years that the BRICs plus another 10 emerging markets should overtake the old guard (US, Europe) in terms of percentage of market cap. It is almost inevitable, they keep spending beyond their means, and the trade surpluses keep going the other way. The main way to pay down their debts is actually via these emerging markets to buy out large stakes of their companies, as that would recycle back the funds.
Bespoke Investment Group:
One of the main headlines on The Drudge Report this morning is that China has overtaken Japan as the world's second biggest economy. Looking at Bloomberg numbers of equity market caps for countries, China is getting very close to second biggest as well.
As shown below, Japan's stock market capitalization is currently 7.97% of world market cap. China ranks second at 6.89%. Five years ago, Japan accounted for 10.34% of world market cap, while China accounted for just 1.10%. Back in 2005, China ranked just 17th in terms of market cap, behind countries like Saudi Arabia, Spain, Switzerland, South Korea, Taiwan, India, and the Netherlands. Now with the world's second biggest economy and third biggest stock market, it's hard to classify China as an emerging market, but it is indeed still emerging in terms of growth.
In the bottom chart we highlight the change in percent of world market cap over the last five years. As shown, China has had the biggest growth in percentage points, while the US has had the biggest fall. Hong Kong, India, and Brazil have seen pretty big increases in share, while the UK, France, and Japan have all lost the most ground after the US. It will be interesting to see how things look in another five years.
It is heartening to see Malaysia's percentage jumping from 0.49% five years ago to 0.77%. That was quite a jump in terms of absolute percentage. Somehow I think that was more because of the calamities the developed markets went through rather than through "actual initiatives" undertaken by ourselves. Singapore rose from 0.63% to 1.11%, also remarkable. If we strategise better, take better care of how we allocate our resources, we should be hitting 2% by now, seriously.