Further Support for Emerging Market Equities

May 22, 2013

This week’s Chart of the Week examines historical and projected contributions to total world Gross Domestic Product (GDP) based on Purchasing Power Parity (PPP) at exchange rates prevalent in the United States. The International Monetary Fund (IMF) in its April 2013 release of the World Economic Outlook report shows the share of total world GDP between advanced economies and emerging and developing economies from 1980 through 2018. As seen in the above graph, advanced economies’ share of world GDP has steadily declined since the early 1990’s with emerging and developing economies comprising an increasingly larger percentage of world GDP over this time.

2013 is the first year that emerging and developing economies are expected to contribute a larger share of total world GDP than advanced economies. In addition, emerging market countries typically have lower levels of government debt and more favorable demographics than their advanced economy counterparts. While emerging market stocks have underperformed in recent years compared to other equity markets, their growing contribution to world GDP offers a compelling case for continued allocations to this asset class.