MGI Emerging Equity Gap Executive Summary (1)

8/3/2019 MGI Emerging Equity Gap Executive Summary (1)

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McKinsey Global Institute

December 2011

The emerging equity gap:Growth and stability in thenew investor landscape


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Copyright McKinsey & Company 2011

T MKi G Ititt

The McKinsey Global Institute (MGI), the business and economics research

arm o McKinsey & Company, was established in 1990 to develop a deeper

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aecting business strategy and public policy. MGIs in-depth reports have

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Charles RoxburghSusan LundRichard DobbsJames ManyikaHaihao Wu

December 2011

The emerging equity gap:Growth and stability in thenew investor landscape


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Total value o global

fnancial assets in 2010,

$198 trillion

21% in emergingeconomies

fnancial assets held byhouseholds (excluding retirementaccounts and insurance products)

$85 trillion

o emerging markethousehold portoliosare invested in equities,compared with

in UShouseholds

15%

42%

Global financial assetstoday . . .


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in emergingeconomies

Projected value o global

fnancial assets in 2020,1 with

$371 trillion

30%Estimated share o globalfnancial assets in listedequities in 2020, down rom22%

in 201028%

Potential global equity gapin 2020

$12.3 trillion

. . . and tomorrow

1 Base case scenario, derived from consensus GDP growth forecasts (using 2010 exchange rates).


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The emerging equity gap: Growth and stability in t he new investor landscape


1

Several orces are converging to reshape global capital markets in the coming

decade. The rapid accumulation o wealth and nancial assets in emerging-

market economies is the most impor tant o these. Simultaneously, in developed

economies, aging populations, growing interest in alternative investments, the

move to dened-contribution pension schemes, and new nancia l regulations are

changing how money is invested. These orces point to a pronounced rebalancing

o global nancial assets in the coming decade, with a smaller share in publicly

listed equities.1

This emerging picture is based on new research by the McKinsey Global Institute

on the size, growth, and asset allocations o investor portolios around the world.

This work complements our previous reports on de leveraging in the worlds major

economies and the e ects o an investment boom in emerging markets on real

interest rates in coming decades.2 In this report, we develop new insights into

how the worlds nancial assets are growing and being invested, and how these

assets could evolve over the next decade. Among our key ndings:

Today, investors in developed economies hold nearly 80 percent o the worlds

nancial assetsor $157 trillionbut these pools o wealth are growing slowly

relative to those in emerging markets.

The nancial assets o investors in emerging economies will rise to as much

as 36 percent o the global total by 2020, rom about 21 percent today. But

unlike in developed countries, the nancial assets o private investors in these

nations currently are concentrated in bank deposits, with little in equities.

Several actors are reducing investor appetite or equities in developed

countries: aging populations; shits to dened-contribution retirement plans;

growth o alternative investments such as private equity; regulatory changes

or nancial institutions; and a possible retreat rom stocks in reaction to low

returns and high volatility.

Based on these trends, we project the share o global nancial assets in

publicly traded equities could all rom 28 percent today to 22 percent by

2020. That will create a growing equity gap over the next decade between

the amount o equities that investors will desire and what companies will need

to und growth. This gap will amount to approximately $12.3 trillion in the 18

countries we model, and will appear almost entirely in emerging markets,

although Europe will also ace a gap.

1 In this report, we use the terms equities and stocks to reer to shares in publicly listedcompanies, not the unlisted equity in privately- or government-owned companies.

2 See McKinsey Global Institute, Debt and deleveraging: The global credit bubble and its

economic consequences, January 2010, and Farewell to cheap capital? The implications o

long-term shits in global investment and saving, December 2010. These reports are available

online at www.mckinsey.com/mgi.

Executive summary


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2

As a result, companies could see the cost o equity rise over the next decade

and may respond by using more debt to nance growth. Only a tripling o

equity allocations by emerging market investors could head o this drop

in demand or equitieswhich will be dicult to accomplish in this time-

rame, given the remaining institutional barriers. The probable outcome is aworld in which the balance between debt and equity has shited.

The implications o this shit are potentially wide ranging or investors, businesses,

and the economy. Companies that need to raise equit y, particularly banks that

must meet new capital requirements, may nd equity is more costly and less

available. Reaching nancial goals may be more dicult or investors who choose

lower allocations o equities in their portolios. And, with more leverage in the

economy, volatility may increase as recessions bring larger waves o nancial

distress and bankruptcy. At a time when the global economy needs to deleverage

in a controlled and sae way, declining investor appetite or equities is an

unwelcome development.

Today, the advantages o investing in listed equities are be ing questioned in light

o corporate scandals and a perception that the markets may no longer serve the

interests o ordinary investors.3 But equity markets, when unctioning properly,

provide signicant benets across an economy. They are an important source o

long-term nancing or high-growth companies; they allocate capital e ciently;

and they disperse risk and reduce vulnerability to bankruptcy. These advantages

outweigh shortcomings, we believe, and make public equity ownership an

important element o a balanced global nancial system.

Global wealTh Is shIfTInG To eMerGInG econoMIesUntil this decade, the preerences o investors in developed nations have shaped

the evolution o global capital markets. Today these investors control 79 percent

o the worlds nearly $200 trillion in nancial assets (Exhibit E1).4

Broadly speaking, investors in developed economies hold highly diversied

portolios, with signicant portions in equities. The United States stands out or

consistently high equity allocations: currently US households have 42 percent

o their non-retirement nancial assets in publicly listed shares. Households in

Hong Kong have similar shares o their wealth in equities. On average, Western

European households placed 29 percent o their nancial assets in equities in

2010.

Among developed nations, Japan stands out or its ver y low investment in

equities. Despite a long tradition o equity investing by individual investors or

most o the 20th century, Japanese households now hold less than 10 percent

o their assets in equities, down rom 30 percent beore the 198990 crash.

Because o low or negative returns over the past two decades, Japanese

allocations have never exceeded 18 percent in this period.

3 See Dominic Barton, Capitalism or the long term, Harvard Business Review, March 2011.

4 We dene nancial assets as equities, bonds, and other xed-income securities, cash and

bank deposits, and alternative assets. We exclude the value o real estate, derivatives, physical

assets such as gold, and equity in unlisted companies.


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3The emerging equity gap: Growth and stability in t he new investor landscape


Emerging market nancial assets grew 16.6 percent annually over the past

decade, nearly our times the rate in mature economies. These assets stood at

about $41 trillion in 2010 and constituted 21 percent o the global total, up rom

7 percent in 2000. Depending on economic scenarios, we project that emerging

market nancial assets will grow to between 30 and 36 percent o the global totalin 2020, or $114 to $141 trillion (Exhibit E2).5 Chinas nancial assets could be as

much as $65 trillion by then, and Indias could reach $8.6 trillion.6

With this growth, emerging markets will become an increasingly important

orce in determining the shape o the global nancial system. Emerging market

investors keep most o their assets in bank deposits (Exhibi t E3),7 which refects

lower income levels, underdeveloped nancia l markets, and other barriers to

diversication. A key question or the uture o global nancial markets is the

speed and extent to which investors in these countries will develop a larger

appetite or equities and other nancial instruments and diversiy their port olios.

5 Our base case consensus growth scenario and the two-speed recovery scenario use 2010

exchange rates, and so do not include impact o currency movements on asset values. We

model the eects o likely currency in an alternate scenario. See Appendix or addi tional detail

on the scenarios.

6 This high estimate includes the impact o appreciation o the renminbi and other emergingmarket currencies over the next decade

7 Moreover, in many emerging markets, a large share o wealth is held in physical assets, such

as real estate and gold. See Alok Kshirsagar and Naveen Tahilyani, Deepening fnancial

savings: Opportunities or consumers, fnancial institutions, and the economy, McKinsey &

Company, November 2011.

exiit e1

1 Includes Australia, Canada, and New Zealand.2 Includes both developed countries and emerging markets.3 Includes defined contribution plans and individual retirement accounts (IRAs).NOTE: Numbers may not sum due to rounding.

SOURCE: National sources; McKinsey Global Institute

Financial assets owned by residents, 2010

$ trillion

Large (>$10 trillion)

Medium ($310 trillion)

Small (


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4

Over the past century, there has been a clear pattern: with ew exceptions, as

countries have grown richer, investors have become more willing to put some

money at risk in equities to achieve higher rates o return. We have seen this

pattern not only in the United States and Europe, but more recently in Singapore,

South Korea, and Hong Kong. However, other actors must also be in place or

equity markets to thrive: rules and regulations that protect minority investors,

transparency by listed companies, sucient liquidity in the stock market, the

presence o institutional investors, and easy access to markets by retail investors.

exiit e2

The share of global financial assets held in emerging markets will rise

over the next decade in all economic scenarios

SOURCE: McKinsey Global Institute

14

1010

9

9

99

9

Western Europe

Japan

Other developed

China

24

Other emerging

22

2020F:Consensus with

currency appreciation3

391.5

17

19

2020F:Two-speedrecovery2

338.1

25

23

16

United States

18

2020F:Consensus

growth scenario1

371.1

27

24

14

16

2010

198.1

29

27

10

11

Total financial assets, 201020F

%; $ trillion

Emerging markets

financial assets

$ trillion

1 Measured in 2010 exchange rates.2 Rapid growth in emerging markets but low growth through 2015 in mature economies.3 Emerging markets currencies appreciate vis--vis the US dollar.

41 114 114 141

exiit e3

Today, most investors in emerging markets have very low allocationsto equities

Compound

annual growth

rate, 200010

%

Asset allocation by investor, 2010

%; $ trillion

18

39

15

54

65 5481 77

108

EmergingAsianhouse-holds

10

13

Emergingmarketcentralbanks

14

5

Other

Equities

Cash anddeposits

Fixed income

Chinesehouse-holds

90

24

1418

14

5 3

3.5

32

13

06.5

52

29

6

1.8

34

23

5

5.9

47

30

LatinAmericanhouse-holds

MENAhouse-holds

DevelopedAsianhouse-holds1

Sovereignwealthfunds

WesternEuropehouse-holds andpensions

US house-holds andpensions

2.73.64.328.342.0100% =

Traditional investors Emerging investors

4 8 239 16 16 14 223

1 Includes Singapore, Hong Kong, Korea, and Taiwan. Excludes Japan, where households allocate 10% of their portfolio toequities.

SOURCE: National sources; McKinsey Global Institute


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Today, most emerging markets lack these conditions. Exchanges are o ten

dominated by state-controlled companies with only a small portion o their

shares trading publicly, exposing investors to high levels o volatility. Even where

appropriate regulatory rameworks have been erected, enorcement oten has

been weak. Limited visibility into corporate perormance and little accountabilityto public shareholders put outside investors at a urther disadvantage. Not

surprisingly, in a recent survey, more than 60 percent o investors in emerging

Asian economies said they preer to keep savings in deposits rather than in

mutual unds or equitiesa gure that has changed little over the past decade.8

why InvesTor deMand for equITIes MIGhT declIne In

developed econoMIes

Aging is the largest actor aecting investor behavior in mature economies. As

investors enter retirement, they typica lly stop accumulating assets and begin to

rely on investment income; they shit assets rom equities to bank deposits and

xed-income instruments. This pattern has led to predictions o an equit y sell-o

as the enormous baby boom generation in the United States and Europe enters

retirement9 (the oldest members o this cohort reached 65 in 2011). We nd this

ear is somewhat exaggerated, but the eects o aging are real: i investors retiring

in the next ten years maintain the equity allocations o todays retirees, equities

will all rom 42 percent o US household portolios to 40 percent in 2020and to

38 percent by 2030. In Europe, where aging is even more pronounced, we see an

even larger shit in household portolios.

Also infuencing equity allocations in mature economies are the shit to dened-

contribution retirement plans in Europe and rising alocations to alternative

investments. In Europe, we see that dened-contribution plan account ownersallocate signicantly less to equities than managers o dened-benet plans.

And as private pension unds close to new contributors, managers are shi ting

to xed-income instruments to meet remaining liabilities. Meanwhile, institutional

investors and wealthy households seeking higher returns are shiting out o public

equities and into alternative investments such as private equity unds, hedge

unds, real estate, and even inrastructure projects. Although we estimate that

some 30 percent o assets in private equity and hedge unds are public equities,

the shit is still causing a net reduction in allocations to equities.

Another actor weighing on demand or equities is weak market perormance.

The past decade has brought increased volatility and some o the worst ten-yearreturns on listed equities in more than a century. In opinion polls, Americans say

they have less condence in the stock market than in any other nancial institution

and believe that the market is no longer air and open.10 However, to put these

sentiments in perspective, it is also wor th noting that individual investors can

have short memories and may be willing to return to equities in the event o an

extended rally.

8 See Kenny Lam and Jatin Pant, The changing ace o Asian personal nancial services,

McKinsey Quarterly, September 2011.

9 See James Poterba, Demographic structure and asset returns, Review o Economics and

Statistics, Volume 83, Number 4, 2001, 565584. Also see Zheng Liu and Mark M. Spiegel,Boomer retirement: Headwinds or US equity markets? Federal Reserve Bank o San

Francisco, FRBSF Economic Letter, Number 26, Federal Reserve Bank o San Francisco,

August 22, 2011.

10 See Paola Sapienza and Luigi Zingales, Financial Trust Index, Results, Wave 12, October 19,

2011, and NBC News/Wall Street Journal, Study Number 10316, May 2010.


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6

The nal actor is the eect o nancial industry reorms on the uses o equities

by banking and insurance companies. US and European banks today hold

$15.9 trillion o bonds and equities on their ba lance sheets. But new capi tal

requirements under Basel III will prompt banks to shed risky assets, including

equities and corporate bonds. Similarly, European insurers have already reducedequity allocations in anticipation o new rules, known as Solvency II, and could

lower them urther over the next ve years. At a time when European banks need

to raise more capital, Solvency II constrains the insurance sector as a potential

purchaser o that equity.

The eMerGInG equITy Gap

As a result o shiting global wea lth and investor behavior, we estimate that by

2020 investors around the world may allocate just 22 percent o their nancial

assets to equities, down rom 28 percent today (Exhibit E4). The rise o wealth in

emerging nations is the largest actor in this shit, ollowed by aging populations

and growth o a lternative investments.

This trend away rom equities will aect how companies are unded. Even though

total investor demand or equities would still grow by more than $25 trillion over

the next decade in our base case scenario,11 this demand would not be sucient

to cover the amount o additional equity that corporations will need. Companies

issue shares to support growth and to allow ounders, venture investors, and

other insiders to monetize their shares. Using a sample o ten mature economies

and eight emerging markets,12 we calculate that companies will need to raise

$37.4 trillion o additional capital to suppor t growth. This would exceed investor

11 This scenario uses consensus orecasts or GDP growth and saving rates, and country-specic historic rates o asset appreciation. It allows or changing asset allocations due to

aging, regulatory changes, and shiting investor tastes toward alternative investments. See

Appendix or details.

12 Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico,

Russia, South Arica, South Korea, Spain, Turkey, United Kingdom, and United States.

exiit e4

In our baseline scenario, equities decline from 28 percent of financial

assets to 22 percent by 2020


28.1

71.9

100% = 371.11

Equities

Otherinvestments2

2020F

21.8

78.2

2010

198.1

Global asset allocation, 201020F

%; $ trillion; 2010 exchange rates

1 Based on consensus global growth scenario.2 Includes cash, deposits, and fixed-income securities.

0.3

0.4

1.3

1.7

2.6

Equity allocation,

201028.1

21.8

-6.3 p.p.

Equity allocation,

2020F

Regulation

Pensions

Alternatives

Aging

Emerging markets

Change in global equity allocation, 201020F

Percentage points


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demand in those countries by $12.3 trillion (Exhibit E5). Eventually, markets will

move to correct this imbalance: equity prices may all and returns may rise to

stimulate investor demand, or companies may use more debt and less equity to

und growth. Nevertheless, this change in demand would represent a signicant

reduction in the role o equities in the global nancial system.

Most o the emerging equity gap would occur in developing nations. Companies

in those countries not only have high needs or external unding to keep up

with their rapid growth, but they also have relatively low returns on invested

capital (ROIC), which limits their abili ty to use retained earnings to und growth.

In addition, many large companies, both privately owned and state owned, will

seek to list on stock exchanges and issue shares. In Europe, a smaller equity

gap would appear, as a result o declining investor appetite or equity, aging, and

rising needs or new equity by banks.

In the United States and several other developed countries, investor demand or

equities will most likely continue to exceed what companies will need because

many companies in these economies generate sucient prots to nance

investment needs. Indeed, US companies at the end o 2010 had more than

$1.4 trillion in cash, and over the past decade nonnancial corporations have

been buying back shares, rather than issuing new ones.13

Changes on several ronts could narrow the gap between corporate needs and

investor desire or equity. Households in the large equity investing countries

could be encouraged to save more and overcome home bias to purchase

more oreign equities. In addition, corporations, particularly in emerging markets,

could become more ecient users o capita l, enabling them to und more o

their growth through retained earnings. Finally, emerging market investors couldrapidly develop a larger appetite or equities. We calculate that i emerging market

13 See McKinsey Global Institute, Mapping global capital markets 2011, August 2011

(www.mckinsey.com/mgi).

exiit e5

1 France, Germany, Italy, Spain, and the United Kingdom.2 Australia, Canada, Japan, and South Korea.3 Brazil, India, Indonesia, Mexico, Russia, South Africa, and Turkey.

The emerging equity gap: Demand for equities may not

satisfy corporate needs


Incremental demand for equities by domestic investors vs.

increase in corporate equity needs, 201020F

$ trillion; 2010 exchange rates

37.4

25.1

-12.3

Increase incorporateequity needs

Incrementaldemand forequities

4.7

3.5

2.8

4.3

9.8

10.5

7.9

3.9

5.9

9.2

Other emerging3

China

Other developed2

Western Europe1

United States

Increase in corporateequity needs

Incremental demandfor equities


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8

investors were to raise their equity allocations to current US levels over the next

decade, global investor demand or equities would match corporate needs.

However, such a sudden shi t in investor preerences would be unprecedented

and would require rapid evolution o institutions, market access mechanisms,

and practices that make markets attractive to indiv iduals seeking long-termappreciation.

econoMIc consequences and IMplIcaTIons for

coMpanIes and InvesTors

A shit away rom equity in the global nancial system is an important trend and,

in our view, an unwelcome one. Equity markets have enabled growth by eciently

channeling money to the best-perorming companies, including rapidly growing

enterprises that drive economic growth. Although the debate over the relative

merits o equity nance versus debt nancing is not settled, the most persuasive

empirical evidence suggests that i legal protections or shareholders are strong,

nancial systems that include robust capital markets in addition to bank nancing

promote aster and more stable economic growth than predominantly bank-based

ones.14

Moreover, at a time when the global economy still struggles to recover rom

the collapse o the credit bubble, greater use o debtwhether rom banks or

through capital marketswould be an unwelcome development. Public equities

disperse corporate ownership and give companies resilience in downturns; equity

is a highly eective shock absorber. By contrast, higher leverage increases the

risk o bankruptcy and economic volatility and makes the world economy more

vulnerable to shocks.

As their allocations to equity decline, ordinary investors may nd it more

challenging to meet saving goals. Institutional investors and wealthy amilies have

many options to generate high rates o returnprivate equity, hedge unds, real

estatebut retail investors do not. We nd that the poor equity returns o the past

decade are anomalous. For almost all ten-year periods in the modern eraexcept

in Japanequities have generated signicantly higher real returns than bonds.

Many companies are likely to nd that they are unable to raise enough equity in

their home countries or can do so only at high cost. Banks, par ticularly in Europe

where investor demand or equities is weak, may nd it challenging to nd buyers

or all the additional equity capi tal they need to raise. All companies will wantto think about sourcing capital globa lly by listing in markets where investors

demand or equities is strong, or through private placements o equity shares.

At the same time, shiting patterns o global wealth will create opportunities

and challenges or the asset management industry and or investors. Asset

managers will need an increasingly globa l reach to cultivate the emerging investor

classes o Asia and other regions, which will require tailored products to t their

preerences and budgets. In mature markets, aging and low returns present

growth challenges. However, there are unmet needs, too: the industry can prot

by educating investors about the nancial impl ications o longer lie spans,

including the need to get higher returns over a longer period. In this vein, some

asset managers may need to redesign target-date mutual unds i they reduce

14 See Thorsten Beck and Ross Levine, Industry growth and capital allocation: Does having a

market- or bank-based system matter?Journal o Financial Economics, 2002.


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or eliminate equities too early to meet the ongoing accumulation needs o clients

today.

Investors around the world will need to think more globally. Today investment

portolios remain disproportionately skewed toward investors home markets.Investors in developed countries can tap aster pockets o economic growth by

buying oreign shares or shares o multinational companies that are active in ast-

growing markets. The challenge will be to nd sources o return commensurate

with the riskand to nd good values. Today, with the limited amount o shares

in emerging market companies available to public investors, valuations can be

distorted.

polIcy opTIons To consIder

We propose that business leaders and policy makers around the world consider a

range o options to ensure that the potential equity gap does not emerge and that

the world economy is set on a more stable, more sustainable course.

Emerging markets. Emerging economies can create the conditions in which

healthy equity investing cultures can take root. They can strengthen listing

requirements, ensure that securities regulations require ull transparency by

issuers, and provide meaningul protections to minority shareholders. Emerging

market ocials should also use regulatory changes and incentives to encourage

aster expansion o institutional investors, such as pensions and insurance

companies. They also can encourage development o more channels or equity

investing by households.

Developed countries.As we have argued in previous reports, increasing thesaving rate in the United States and other developed nations is an important step

or ensuring long-term growth and rebalancing the global economy. Increasing

saving overall would also increase fows into equities in these nations. More tax

incentives or saving, automatic enrollment in retirement plans (with the right to

opt out), and changes in the deault allocation are all proven saving boosters.

Additionally, we would look into removing tax biases that avor corporate use o

debt over equity and reducing management incentives that reward buybacks and

higher leverage. Finally, policy makers should also consider measures to revive

the IPO market, such as expanding the streamlined registration process or small

rms or creating a more robust legal ramework or crowdunding. Enabling

small-company listings is important or maintaining a vibrant equity culture thatattracts investors.

Global policy makers.The ree fow o capital between nations will be even

more important in a time o limited demand. To enable global capi tal fows,

emerging nations need to allow greater access to their equity markets while

protecting themselves rom the ebb and fow o hot money. Ultimately, the best

protectionand the best way to attract investmentis to develop broad and deep

nancial markets and credible oversight. To overcome home bias by investors,

nations can remove limits on overseas investing. Access to currency hedging

instruments and nancial education about global diversication would also help

investors raise their allocations o oreign equities. Finally, international regulatory

bodies should careully consider the cumulative impact o new regulations


16/18

10

aecting banks and other nancial institutions, as these may have unintended

consequences.15

* * *

Governments and business leaders share a common interest in expanding the

supply o equity to the world economy. More equity will promote more stable and

possibly more rapid growth. Many steps that could reverse the current trends

against equities are well understood. Action now will ensure that the potential

equity gap does not emerge, and put the world economy on a more stable, more

sustainable course.

15 See, or example, Ahmed Al-Darwish et al., Possible unintended consequences o Basel III

and Solvency II, IMF Working Paper Number 11/187, August 2011.


17/18

Related McKinsey Global Institute publications

www.mckinsey.com/mgi

eBook versions o selected MGI repor ts are available at MGIs

website, Amazons Kindle bookstore, and Apples iBookstore.

Download and listen to MGI podcasts on iTunes or at

www.mckinsey.com/mgi/publications/multimedia/

Debt and deleveraging: The global credit bubble and its economic

consequences (January 2010)

The bursting o the great global credit bubble has let a large burden o debt

weighing on many households, businesses, and governments, as well as on

the broader prospects or economic recovery in countries around the world.

Leverage levels are still very high in ten sectors o ve major economies. I

history is a guide, one would expect many years o debt reduction in these

sectors, which would exert a signicant drag on GDP growth. Read updated

analysis and 2010 report.

Farewell to cheap capital? The implications o long-term shi ts in global

investment and saving (December 2010)

By 2020, hal o the worlds saving and investment will take place in emerging

markets, and there will be a substantial gap between global investment

demand and the worlds likely saving. This will put upward pressure on real

interest rates and require adjustment by nancial institutions, nonnancial

companies, investors, and policy makers.

The new power brokers: How oil, Asia, hedge unds, and private equity

are shaping global capital markets (October 2007)

Four actorspetrodollar investors, Asian central banks, hedge unds, and

private equityare playing an increasingly important role in world nancial

markets. MGI oers new evidence on the size o these new power brokers,

their impact, and their growth prospects.

McKinseyGlobal Institute

TheNewPowerBrokers:HowOil,Asia,HedgeFunds,andPrivate EquityAreShapingGlobalCapital Markets

October2007

Mapping global capital markets 2011 (August 2011)

The 2008 nancial crisis and worldwide recession halted a three-decade

expansion o global capital and banking markets. Today, growth has

resumed, ueled by expansion in developing economies but also a $4.4

trillion increase in sovereign debt. The total value o the worlds nancial

stock, comprising equity market capitalization and outstanding bonds and

loans, has increased rom $175 trillion in 2008 to $212 trillion at the end o

2010, surpassing the 2007 peak. Similarly, cross-border capital fows grew to

$4.4 trillion in 2010 ater declining or two years.


18/18


December 2011Copyright McKinsey & Company

www.mckinsey.com/mgi

@McKinsey_MGI

McKinseyGlobalInstitute

Documents

MGI Emerging Equity Gap Executive Summary (1)