Emerging Capital Markets

Emerging Capital Markets are financial markets that reside in the low or middle income economies or where the ratio of investable market capitalization to GNP is low. Such parameters to classify the financial market are set by the International Finance Corporation.

Based on the above two criteria the bond market of Hong Kong and Singapore are classified as the Emerging Capital Markets . The emerging capital market nations have a large population size but a very low share of the world GNP . Out of 155 of the Emerging Market Nations only 81 have equity markets. Although the world equity market has grown from below $3.0 trillion in 1980 to above $31 trillion in 1999, the emerging capital market economies have grown only by 12.5%. the bond market capitalization relative GDP is also very low for the Emerging Capital Markets compared to the Developed Markets.

The emerging capital markets are characterized by derivative markets that are small but organised. There are organized exchanges where both options and futures contracts are traded for agricultural products, metals , local foreign currency and interest rate products.

The Emerging Capital Markets are segmented from the rest of the world . This implies that different interest rates exist for the same level of risk.

The net private capital flows to the emerging capital markets reached 3.5% of GDP in 1995, remained strong till 1996 but witnessed a sharp fall by 1997.

According to the statistics of the Bank for International Settlements the emerging capital markets have grown by 3% to 5%of the world market. It has been observed that about 60% of the emerging capital markets resided in Asia , 21% in Latin America and 19% in Eastern Europe, Middle East and Africa.

Although the marginal propensity to save is very high for East Asian countries, the bond market is not fully developed. The local bond market as a percentage of GDP is about 30-50% for the countries like Malaysia, Korea Philippines and India. This ratio is below 10% in Hong Kong, Thailand, China and Indonesia. Due to the absence of any yield curve in the emerging debt markets, there is lack of liquidity in these markets.

As far as the equity market is concerned, the IFC has listed 7 countries which have a market capitalization below $100 million. China, Taiwan and Korea are the largest emerging equity markets. Although the size of the emerging equity market is very small, more number of domestic companies participate in these markets as compared to the equity markets of the developed countries.

For more details on the emerging capital market, websites that are of importance are investopedia.com, stern.nyu.edu, capitalspectator.com, eldis.org