Emerging Markets Slip in Global Capitalization

Emerging markets’ share of world stock market capitalization fell in 1995 for the first time in five years, reflecting losses in some Latin American markets, the International Finance Corp. reported Monday.

The decline resulted largely from “the negative impact” on financial markets carried over from the Mexican peso crisis that began in December 1994, according to the IFC, a unit of the World Bank.

Emerging markets accounted for 11% of the value of global stock markets at the end of 1995, down from 13% at the end of ‘94, the IFC said in its annual Emerging Stock Markets Factbook for 1996.

It was the first year emerging markets didn’t grow as a percentage of world stock market capitalization since 1990, when the equity markets in developing countries accounted for about 5% of their value.

Stocks declined in many Latin American markets last year in response to the peso crisis, which occurred after the Mexican government first devalued the currency and then stopped buying it to bolster its value.

Even so, the IFC said there is still evidence that institutional investors are allocating more money to equity markets in developing countries. Increasingly, many invest in index funds that seek to match the performance of the market by buying stocks included in a benchmark index.

More than $7 billion was invested in emerging-market index funds as of February, up from $200 million three years earlier. The IFC said more than a dozen firms now offer index investments and at least six more soon will.

The largest emerging market at the end of 1995 was South Africa, with a market capitalization of $280 billion. Its stock market was the 10th-largest in the world.

Other leading emerging markets include Malaysia, with a market capitalization of $222 billion; Taiwan and China, with a combined total of $187 billion; Korea, $181 billion; and Brazil, $147 billion.