Graphic of the Day: Share of World Market Cap by Country

From Bespoke Invest

Just a reminder: The state of today’s global equity markets have substantially been dependent on central bank steroids, especially for major economies. This means that rankings of the share of market cap can drastically change when major shifts will be made in central bank policies. Of course, given the huge margin, US equity markets will remain the leader for sometime. The important point to observe will be the change in variance .

Funds Rotating Back To The US Equities A Long Term Trend?

We appreciate the wonderful charts of Bespoke Invest, which we frequently feature here.

Although in some instances, they'd seem a bit bias (especially against China). From Bespoke, ``One of the easy ways to see how a country is performing relative to other countries is to look at its market cap as a percentage of world market cap. In the early stages of the global rebound off of the March lows, the US rose significantly, but other countries were gaining even more. In recent months, however, the tide has turned, and the US is now outperforming the rest of the world. As shown, US stock market cap as a percentage of world market cap has been steadily rising since last November. During the 2003-2007 bull market, emerging markets and other countries really outperformed the US. If this bull market continues and the US continues to gain share, it will represent a very big trend change that will make a huge impact on portfolio performance depending on an investor's domestic versus international equity allocation." Nevertheless, this observation is true for today, according to Livemint,

``Funds are being rotated to the US—a fact corroborated by EPFR Global’s report that flows into US equity funds have been positive for four straight weeks, their longest winning streak since the third quarter of 2008. The paring of overweight positions not only protects against the risk of a sharp pullback, but also leaves the door open for positive surprises."

The reason China has been down is that she has been deliberately attempting to fight her "inner" devils (a.k.a bubbles).

In contrast, the US still is in an "inflationary" mode.

To add, last year saw emerging markets including China massively outperform the US, which is the reason why the US share of global market cap declined materially.

The recent outperformance of the US relative to emerging markets seems more of hiatus than of a "longer trend".

The axiom, "no trend moves in a straight line" for emerging markets should apply here.

Besides, it is also observable that the outperformance of the US has been in sync with the strength of the US dollar index (perhaps to reflect on the fund flows).

As the US equity markets regained their share of the global market cap beginning last November, the US dollar firmed as well.

But this can be interpreted differently, the vitality of the US dollar index isn't because the USD has been technically or economically "strong", but in the instance where both the US dollar and the euro (which weighs 57.6% in the US dollar index basket) have been weak, the euro has been relatively weaker than the US, ergo the strength of the US dollar. And this is why commodities have remained resilient even in the face of a strong US dollar (where is the US dollar carry?).

This also implies that the current trends isn't likely to last because of the problems that continues to ail the US. The relative strength especially applies to Asian and emerging market currencies.

This will be amplified if the oversold euro will see a sharp bounce. And this should also be reflected on the rest of the global equity markets.

Hence, in contrast to the projection that fund flows to the US will be a long term trend that would extend US equity outperformance, we see this as a short term phenomenon. Enjoy them as it last.

Decoupling In Share of Global Stock Market Capitalization

Bespoke Invest provides us with an update of the market cap share of the global stock market pie for 2009.


According to Bespoke (bold emphasis mine),

``the US remains the biggest country with its stocks making up 29.61% of world market cap. This is more than three times Japan's representation in second place at 7.68%. At the start of the year, the US had 32.75% of world market cap, so its representation is down 9% in 2009 even though US equity markets are up. At 7.27%, China overtook the UK in third place in 2009 and is closing in on Japan.

``Brazil's percent of world market cap increased the most in 2009 at 58.2%. Its weighting has gone from 1.84% to 2.92%. Indonesia, India, Australia, Turkey, China, Russia, and Taiwan have all seen their weightings increase by 25% or more this year. On the flip side, Japan has lost the most market share of the developed countries, declining from 10.28% to 7.68%."

Additional observations:

In terms of the top 20 in market cap:

- 8 comes from Asia, 8 from Europe, 2 from Latin America.

-Except for Sweden, Canada and UK, developed countries mainly have suffered from a decline in the share of market cap

Overall, developing nations have been taking most of the growth in the share of global stock market capitalization at the expense of the developed nations.

Yet if current trend persists, then most of the action is likely to be seen in developing nations.

Apparently, this also seems to validate the actions in the global IPO market [see Decoupling In Global IPO Markets], crisis nothwithstanding.

Global Stock Market: Investors Recover $18.31Trillion

Fascinating charts from Bespoke. It shows of how global stock markets have "V"-igorously bounced.


This from Bespoke, ``At its peak in 2007, total world market cap was $62.57 trillion. By the lows this March, world market cap had dropped to $25.6 trillion! That's a loss of $36.97 trillion in stocks globally. Since the March lows, however, world market cap has risen $18.31 trillion back up to $43.9 trillion.

Again from Bespoke, ``In the US, market cap has risen $4.88 trillion from its low of $8.09 trillion in March. The peak in total US stock market value was $19.14 trillion in 2007, and the current value of all US stocks is $12.97 trillion. The US accounts for 29.5% of total stock market value in the world."

Additional comments:

1) It has been a rising tide lift all boats phenomenon which clearly has been a manifestation of liquidity driven markets.

2) global stock markets are about 30% away from full recovery.

3) US markets still account for one third of stock market value, albeit on a downtrend. This phenomenon is similarly seen in developed economies.

chart from livemint.com

In contrast, emerging markets continues to capture a larger share in the global market cap due to secular forces which has been punctuated by the recent crisis.

According to Manas Chakravarty of livemint, ``The decline in the share of the global pie of the advannced economies is not just due to the current crisis but is a long term trend. According to projections from Credit Suisse, the percentage share of global consumption of the US will decline from 30.2% in 2007 to 20.8% by 2020. In sharp contrast, the share of Chinese consumption is projected to improve from a mere 5.3% of global consumption in 2007 to 21.1% by 2020. India’s consumption, which was 2% of global consumption in 2007, is forecast to rise to 5.3% by 2020. By 2020, according to the Credit Suisse forecasts, China will be the largest contributor to global consumption and India will be the fourth largest."

I think it is more than that. Asia and emerging markets likely move towards less dependence on the banking sector and expand utilization of the capital markets to deepen the financing intermediation within the economy and the region.

Of course there is also the issue of the divergent impact from inflationary policies on developed economies relative to emerging markets and Asia.