X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Can emerging markets save the day? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Aug 22, 2011

    Can emerging markets save the day?

    Almost every single index across global stock markets is in deep in the red after the turmoil the global stock exchanges have seen over the past few weeks. The downgrading of the US economy and the prolonged Euro debt crisis being the main reasons for weakness in the system. If in 2008 it was companies and banks that were in distress and had to be bailed out, this time it is whole countries. Recession fears are now paramount. Earlier, all eyes were on the US government, which arranged rescue packages to support its financial system. But who will save the day this year? The question on everyone's mind is whether the emerging markets (EMs) will be able to the job? They are the only ones seeing some growth. So, can the developed world piggy back on their shoulders?

    On the face of it, the situation doesn't look very rosy. This is especially true of India. As of date, Indian indices have lost one fifth of their value since the start of the year. Real Estate, metal and IT indices have been the worst hit. The market capitalization of almost every large business group including the Tatas, Mahindras, Ambanis and companies from the government's stable have been eroded. Foreign Institutional Investors (FIIs) have been pulling funds out of the country to meet margin calls on their home soil. Will there ever be any respite from all this selling?

    Well we believe so. There is still some hope left. According to McKinsey Global Institute (MGI), out of the total outstanding debt and equity in the world as of 2010, the US accounts for 32% or US$ 67.5 trillion. However, in EMs households, corporations and governments accounted for only 18% of the total or just US$ 37.1 trillion. But their share of world GDP is comparatively much higher at 32%. So there is tremendous potential for this to grow. India and China have been the fastest growers over the past decade. Their share of global financial stock has risen at an average rate of 23% and 21% respectively since 2000. Comparatively the US and Western Europe have grown by only 5% over the past 10 years, according to data from MGI. Thus, even though there might be short term blips here and there, we believe that EMs will continue to shine over the longer term.

    Source: McKinsey Global Institute
    Note: 100% is equal to US$ 212 trillion, representing the end of period stock of
    outstanding debt and equity. EM stands for Emerging Markets

    One main reason why we believe that the EMs will continue to perform going forward is because their financial depth is much lower as compared to that of their developed market peers. Financial depth being - the country's outstanding debt and equity as a percentage of the GDP. The financial depth of emerging markets is in the range of 50% and 250% of the GDP, compared to 300-600% in developed markets.

    While China's depth has reached around 300%, India's is still well below 200%. South Africa, a recent addition to the ‘BRIC' countries (now BRICS) has a closer to 400% financial depth ratio. India's financial markets thus have a stronger potential to develop further. It has potential to growth without getting overleveraged. A strong equity market for capital raising and a well regulated banking system can enable companies to raise funds for investment. Once these investments bear fruit, capital can once again flow back to the system. But this doesn't come without challenges. India's regulatory watchdogs RBI and SEBI have been prudent in their regulations. However, the government has still not been successful in its efforts to weed out corruption and scams in the county. Once this is sorted out, we believe that India's growth can be a benchmark for other emerging markets.

    Source: McKinsey Global Institute, Mapping Global Capital Markets 2011

     

     

    Equitymaster requests your view! Post a comment on "Can emerging markets save the day?". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Which Gods Will Bring Down the US Empire? (Vivek Kaul's Diary)

    Aug 17, 2017

    Mr Trump is in the White House and the gods are in their heavens; what's not to like?

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 17, 2017 (Close)

    MARKET STATS