Goldman Sees $80T Emerging-Nation Stock Market by 2030

The market value of emerging-market stocks may surge more than fivefold to $80 trillion in two decades, overtaking developed nations, as China becomes the world’s largest stock market, Goldman Sachs Group Inc. said.

Faster economic expansion and growing capital markets may lift emerging nations’ share of world equity capitalization to 55 percent by 2030 from 31 percent today, Goldman strategists led by Timothy Moe wrote in a research report. Institutional investors in developed nations will probably buy a net $4 trillion of emerging-market equities, lifting holdings to 18 percent of their total portfolios from 6 percent now, Moe wrote.

“The primary drivers are rapid economic growth and the maturing of equity markets that are at earlier stages of development,” Moe wrote in the report today. “Developed-market institutional asset management pools will need to increase their holdings of emerging-market equities.”

The MSCI Emerging Markets Index has more than doubled since the beginning of 2000 even as the MSCI World Index of advanced- nation shares dropped about 21 percent. Emerging economies will expand 6.4 percent as a group next year, compared with 2.4 percent in developed nations, according to forecasts by International Monetary Fund. Prospects for faster growth spurred investors to add money to emerging-market equity funds for a 14th straight week even as they pulled $6.87 billion from global stock funds, research firm EPFR Global said today.

Relative Valuations

The 21-country MSCI emerging gauge has gained 1.2 percent this year, while the MSCI World index declined 4.2 percent amid concern that stagnant jobs growth and spending cuts by indebted governments will hamper economic recoveries in the U.S. and Europe. The emerging gauge is valued at 14.2 times reported profits, compared with the MSCI World, which trades for 15.1 times earnings, according to data compiled by Bloomberg.

The MSCI China Index of Hong Kong-traded shares has slipped 3.4 percent this year and the Shanghai Composite Index, comprised of stocks traded mostly by mainland Chinese investors, has dropped 18 percent. The market value of Chinese shares may climb to $41 trillion by 2030 from $5 trillion today, topping the $34 trillion projection for the U.S., Moe wrote.

“Emerging equity market capitalization could increase substantially,” Moe wrote. “Investors, financial intermediaries and developed-market corporates will have significant opportunities as well as challenges from these shifts in the equity landscape.”

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