The Emerging Equity Gap

McKinsey recently released a report called The Emerging Equity Gap. You can find the report here.

Some of their key findings include the following:

  • Investors in developed economies hold nearly 80 percent of the world”™s financial assets — or $157 trillion — but these pools of wealth are growing slowly relative to those in emerging markets.
  • ƒThe financial assets of investors in emerging economies will rise to as much as 36 percent of the global total by 2020, from about 21 percent today. But unlike in developed countries, the financial assets of private investors in these nations currently are concentrated in bank deposits, with little in equities.
  • ƒSeveral factors are reducing investor appetite for equities in developed countries: aging populations; shifts to defined-contribution retirement plans; growth of alternative investments such as private equity; regulatory changes for financial institutions; and a possible retreat from stocks in reaction to low returns and high volatility.
  • ƒBased on these trends, McKinsey projects the share of global financial assets in publicly traded equities may fall from 28 percent today to 22 percent by 2020. That will create a growing “equity gap”? over the next decade between the amount of equities that investors will desire and what companies will need to fund growth. This gap will amount to approximately $12.3 trillion in the 18 countries McKinsey modelled, and will appear almost entirely in emerging markets, although Europe will also face a gap.

It looks like I may not be the only investor thinking about this strategy.

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