Column : The great global equity famine
Shobhana Subramanian : Dec 14 2011, 02:48 IST
Itís bad news. A McKinsey report says that, by 2020, investors around the world may allocate just 22% of their financial assets to equities, down from 28% today. That could stymie plans of corporates: a study across 10 mature and eight emerging economies reveals they would need to mop up an estimated $37.4 trillion of additional capital to support growth, an amount that would exceed investor demand by $12.3 trillion. Whatís worse is that most of this estimated shortfall would be seen in developing nations. There could be a way out: itís possible, the report observes, that emerging market investors may acquire a bigger appetite for equities, and were they, over the next decade, to raise their equity allocations to levels currently seen in the US, demand and supply would match. Thatís a long shot though and, as the report says, such a sudden shift in investor preferences would be Ďunprecedentedí, requiring a bunch of initiatives designed to make the markets attractive to individuals. Only a tripling of allocations to equity would raise demand sufficiently, given that households, in most emerging markets, today prefer to put away their money in deposits; on average, they allocate less than 15% of financial assets to equities compared with 42% for US households.
The report is a well-timed wake-up call; 2011 has been a rather disastrous year for equities globally but more so for India, which will probably end up one of the worst performers. Of course, households today hardly play a role in the
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