Say what you want about dysfunctional U.S. politics, its swelling debt levels and weak economy, but the country’s stock market has been outperforming most of the rest of the world in recent months – and that has had a dramatic impact on the size of the U.S. relative market capitalization.
Although the U.S. stock market has dominated the world for a long time, its market cap -- or the total value of all shares -- had been shrinking before the onset of the financial crisis, with a number of emerging markets claiming an ever-rising share. This trend is now reversing. According to data from Bespoke Investment Group, the U.S. market cap is just under 33 per cent of the world’s market cap, up more than three percentage points since the start of 2011.
As Bespoke points out, the U.S. gain has come at the expense of most of the rest of the world. Places like China and India – not long ago seen as rising market behemoths – have taken the biggest relative hits. Their respective market caps have fallen by more than 0.9 percentage points each.
Canada’s share has fallen too, though not by a huge amount: Its share of the global market cap stands at 3.82 per cent today, down from 4.04 per cent.
What does all this mean? While rising and shrinking market caps on their own don't mean a whole lot to investors, they do signify important underlying trends.
One of the most important is that the U.S. is home to some of the world's greatest multinational companies -- along the lines of Apple Inc. , Microsoft Corp. and Coca-Cola Co. -- that can transend problems in local economies. So while the world might be focused on the economic misfortunes of Europe or the slowing growth in China, globally diversified companies remain relatively solid.