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  • Writer's pictureEvelyn Chen

Emerging Economies

One news item that has recently driven the financial markets is the economic rise of the global East and South. Emerging economies, led by China, have accounted for almost two-thirds of global GDP growth and more than half of new consumption in the past 15 years. Underlying their performance are pro-growth policy agendas based on productivity, income, and demand. The next wave of outperformers looms as countries from Bangladesh to Rwanda can adopt a similar agenda and achieve rapid growth.

The dynamism of these economies has led to the rise of highly competitive emerging-market companies. On average, outperformer economies have twice as many companies with revenue over $500 million as other emerging economies. These companies play a growing role on the global stage. While they accounted for only about 25% of all large public companies' total revenue and net income in 2016, they contributed about 40 % of the revenue growth and net-income growth from 2005 to 2016. By several measures, they are already more innovative, agile, and competitive than Western rivals.

The economic rise of formerly labelled 'developing' countries affects the financial markets because of the opportunities for investment in those emerging economies. For example, asset managers and hedge funds can earn better returns by investing in companies in those countries. Between 2014 and 2016, the top quartile of outperformer companies generated an average total return to shareholders of 23%, compared with 15% for top-quartile companies in high-income countries. The speed of new and successful companies being formed also provides new and exciting opportunities for accountancy, venture capital, private equity investment banks to work with them.

Moreover, the economic rise of those countries has created millions of wealthier people: in China alone, 257 billionaires over the past year have been created, bringing the total to 878, according to the Hurun Rich List 2020. This increase in people with more disposable income, including ultra high net-worth individuals such as billionaires, means that there are new markets for the financial markets industry to cater towards. For example, trading firms can expand their trading services to people in China and other growing economies.

To conclude, pro-growth policies implemented in countries previously labelled as 'developing' have provided new opportunities for expansion and growth in the financial markets.

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