Massive growth in the need for financial services in emerging
markets has demanded financial competitors to adapt and innovate.
This has provided tremendous opportunity for fast-acting
companies to benefit.
A report by the World Economic Forum in May this year
showed financial institutions active in emerging markets saw
their
aggregate market capitalization increase by $572
billion
from 2006 to 2011. Institutions in developed economies saw their
market capitalization shrink by $1.5 trillion over the same
period.
While capitalizing on the growth and opportunity and
innovating to meet the nascent demand, emerging markets financial
services companies are among the firms providing the highest
total return to shareholder. The report also concludes that
financial services firms from developed and emerging economies
should be looking to emerging markets for future growth. For
those that do, opportunity exists to provide financial services
to an expanding middle class welcoming the rapid ascension of
low-income populations. And coincidental to the growth of the
middle class, smaller regional institutions are growing and
evolving into competitive global organizations.
The report suggests the growth of financial services firms
will be heavily dependent on traditional business activities:
consumer financing, small to medium business financing, and
corporate bonds. One issue -- and area of opportunity, is the
current failure of many financial services to reach individuals
and companies other than those in higher income areas. There is
an enormous opportunity to penetrate lower-income areas with
these services.
While China produced the largest banks and financial
institutions for more than a decade, many other emerging markets
are now producing important companies such as Brazil, Chile,
Indonesia, Thailand, Malaysia, Turkey, India and South Africa.
According to
Global Finance's annual ranking
of the 50 biggest banks in emerging markets, the order of country
dominance is as follows:
1. China
2. Brazil
3. Russia
4. India
5. South Korea
6. Taiwan
7. South Africa
8. Malaysia
9. Turkey
10. UAE
While that list seems fairly diverse the list of top twenty
companies shows a bit more concentration.
1 Industrial & Commercial Bank of China China
2 China Construction Bank Corporation China
3 Bank of China China
4 Agricultural Bank of China China
5 China Development Bank China
6 Bank of Communications China
7 Banco do Brasil Brazil
8 Itaú Unibanco Brazil
9 Banco Bradesco Brazil
10 China Merchants Bank China
11 China CITIC Bank China
12 Sberbank Russia
13 China Minsheng Banking Corporation China
14 State Bank of India India
15 Caixa Economica Federal Brazil
16 Banco Santander-Brasil Brazil
17 Kookmin Bank South Korea
18 China Everbright Bank China
19 Woori Bank South Korea
20 Shinhan Bank South Korea
Of the top twenty banks, ten are from China and five are from
Brazil. And while the UAE is ranked number ten on the country
list, its first bank to appear is Emirates NBD, which comes in at
number forty-four.
It is expected that China will continue to dominate this list
so long as it continues to grow and maintain its position as the
second largest economy. But that neither minimizes the future
opportunity for banking services in China or any of the other
countries. Many smaller nations have a lot of work to do and
opportunity abounds.
Fortunately for investors, many of these banks trade as ADRs
(American Depository Receipts), and many more will in the future.
There are also
ETF's available
that buy ADRs and ordinary shares of emerging market banks and
financial services companies. The primary issue is short term
versus long term outlook.
Uncertainty concerning the global economy has stifled some
business activity which can slow the progress of banks trying to
penetrate lower and middle classes in emerging markets. But this
is more of a short term concern. Long term there can be little
doubt that the emerging middle class in many emerging market
economies have a destiny set in place.