By Valentina Romei and Stefan Wagstyl

Emerging market stock exchanges have seen their capitalisations soar over the past decade, even after allowing for the setbacks of the last four years.

But the often-explosive growth in valuations has not always been matched by big expansions in the numbers of listed companies. While some exchanges have indeed seen healthy increases in listings  – notably Seoul, Shenzhen and Mumbai – others have seen little change or decline, as in Mexico City, Sao Paulo and Johannesburg. Why? Chart of the week takes a look?

According to the latest data of the World Federation of Exchanges in June 2012, there were approximately 46,000 listed companies in the world, about 40 per cent more than ten years earlier. Global stock market capitalisation more than doubled over the decade to nearly $50 trillion in June 2012.

Emerging markets have contributed hugely to the growth in both stock market value and in listings. But, as the chart below shows, the increases in EM bourse capitalisations (on the horizontal axis) do not always correspond to similar rises in the number of companies listed (on the vertical axis).

 

 

 

 

 

 

 

 

The exchanges at the bottom centre-left of chart saw fast growth in market capitalisation associated with a decline in listed companies. This is the case of South Africa – where the Johannesburg stock exchange has 61 fewer companies than 10 years ago, Mexico and Brazil, with almost 40 fewer companies each.

In Brazil, the decline in listings comes despite the introduction of the lively “Novo Mercato”- New Market – as a segment of the Bovespa stock exchange. With its stricter listing rules than the main board, the Novo Mercato has attracted entrepreneurs with businesses to float. But these gains have been out-weighed by delistings and mergers of  main board groups. According to Bovespa, there were around 360 companies traded in June 2012, down from 428 at the end of 2011, and 399 at the end of 2002.

In Johannesburg too, listed company numbers have been hit by mergers, notably in the mining industry where many gold mines which once had separate listings have been consolidated into larger groups. Meanwhile, South Africa, with its political challenges, has been less of an attractive place to list Africa-focused companies than other bourses, notably London.

In Mexico, the economy and the stock market are dominated by a handful of  big billionaire-controlled groups.  Entrepreneurs with more modest companies have stayed away from the stock market, sometimes fearful of exposing their private interests to public scrutiny and of losing control to corporate predators. Listing numbers have also been hit by changes in accounting methodology at the Mexican bourse.

Meanwhile, in South Korea, which has seen the largest increase in listed company numbers, the gain is largely explained by the 2005 merger of the Korea  Stock Exchange with KOSDAQ, the Korean Securities Dealers Automated Quotations, a Nasdaq-style market for smaller companies, which trades around 1,000 companies. Korean company numbers peaked at 1,800 at the end of 2008, including a healthy flow of Chinese listings. But numbers have since fallen back in the economic crisis.

Other bourses with big increases in numbers have been particularly successful in attracting listings. In China, even though the Shanghai exchange is larger than the Shenzhen in terms of market capitalisation; Shenzhen does better on company numbers because it specialises in smaller businesses. The big state-owned groups tend to favour Shanghai.

Just in the last year the number of companies listed in the south Chinese stock exchange rose by 14 per cent  compared to a 3  per cent rise in Shanghai.

In Mumbai, on the National Stock Exchange of India the growth in the number of companies listed has been steady across the last ten years including a rise of over 3 per cent the last year.

The increase of 700+ in listed companies reflects India’s rapid economic growth, financial deregulation, its entrepreneurial culture and the popularity of the stock market among investors, including many private individuals.

Stockbrokers have seen the listing of smaller companies translate into more active trading. A survey by  the World Federation of Exchanges suggests that bourses with bigger increases in listings had larger proportions of medium and small companies, which were more actively traded than bigger companies.

Good news for brokers in Mumbai, Shenzhen and Warsaw. Pause for  thought for their colleagues in South Africa, Mexico and Brazil.

Additional reporting by Henry Mance in Sao Paulo, Adam Thomson in Mexico City, and Simon Mundy in Seoul

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Chart of the week series, beyondbrics