Portfolio Design: A Modern Approach to Asset Allocation

EMERGING STOCK MARKET INDEXES

Once definitions of emerging and developed countries are established, it’s possible to divide the world’s stock markets along the same lines. Emerging stock markets represent 26.5 percent of the world’s stock markets of the total $35 trillion world stock market capitalization. So a block of countries with about 27 percent of the world’s national income hosts about the same percentage of the world’s stock market capitalization. The bulk of the market capitalization is found in the developed countries with the U.S. stock market representing almost 33.6 percent of the total (despite having only 25 percent of the world’s gross national income).

The emerging stock markets are divided along regional lines in Figure 6.4. East Asia provides the largest block in terms of capitalization. This region consists of all markets between Indonesia and Korea except for Japan, Singapore, and Hong Kong (the latter being measured independently of China). South Asia includes India which accounts for most of the region’s market value. (East Asia and South Asia are combined in the Asia region in some of the statistics below). The Middle East and Africa region includes two of the largest emerging stock markets, South Africa and Saudi Arabia.

These measures of market capitalizations may be misleading if we are interested in stocks that are actually available to the international investor. Not all shares issued by a firm are available to ordinary investors of that country, and ...