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By This Measure China and India Are No Longer "Emerging Markets"

Nov 8, 2016

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The total market capitalisation of the world's stock markets is now worth more than double it was 13 years ago. And a lot of that growth is coming from Asia's so-called emerging markets.

The total value of the world's stock markets has risen 133 percent since 2003. Current stock prices multiplied by the number of shares outstanding - that is, market capitalisation - for the whole world stands at US$65.6 trillion, compared to US$28.1 trillion thirteen years ago. The U.S. has - in absolute terms - accounted for much of that growth, though U.S. markets are up (only) 87 percent.

Other "developed" markets, like the U.K., France, Canada and Japan have seen their total market cap grow over the same period, though by a lot less than the world as a whole.

The United Kingdom, with the fifth-largest market cap today, is up only 36 percent since 2003. France (number 7) has risen 46 percent. Slow economic growth, EU sclerosis, and endless union and currency troubles have crippled European markets.

World's Top 10 Countries by Market Cap
World's Top 10 Countries by Market Cap

The real story here is China and, to a lesser degree, India.

China has come from nowhere to take second place in the world ranking (it's also home to the world's second-largest economy). From a total market cap of US$418 billion in 2003 (or US$200 billion less than Apple's total market cap today), it has grown an incredible 1,479 percent to US$6.6 trillion.

In just 13 years, China has passed every country in Europe and Japan for total market cap. Today, China's stock markets are worth more than those of France, Germany, and Switzerland - combined.

India has also been rocketing up the rankings. It's still not in the same league as China as far as market size, but it's gaining on the rest of the world. Since 2003, it's total market cap has grown 639 percent - more than any other country in the top 10... except China.

European markets are losing their influence

This tremendous growth in market cap since 2003 also means that Asian markets now account for a much larger share of the world's total stock market capitalisation.

The exception to this in Asia is Japan. Its share of global market cap has dropped more than 3 percentage points over the past 13 years. Japan has some major fundamental problems with its economy that will keep its market from growing much for years to come (and that may be spreading to the rest of the world).

Percentage of World Stock Market Cap
Percentage of World Stock Market Cap

Despite the increase in its total market capitalisation, the relative size of American stock markets has fallen sharply. Today the U.S. accounts for 36 percent of the world's stock market capitalisation, compared to 45 percent in 2003. The decline of Europe's markets has been even sharper.

And it's been the opposite for China, which had 1.5 percent of the world's market cap in 2003. But it now has 10.1 percent - that's almost 10 times more in just 13 years. In 2003, even tiny Switzerland and sparsely populated Canada had larger stock markets than China.

And India is coming on strong. It's now home to 2.6 percent of the world's total stock market value. That's up from just 0.8 percent 13 years ago. It's now just behind Germany, France and Canada in the global rankings.

What this tells us

The centre of economic and market gravity has long been shifting east. Though western economies still pull the most weight China and India have arrived, their relative size is shrinking. And this is most visible where investors vote with their feet (or, as it happens, with their clicking pointer fingers) every day: The stock market.

The U.S. is still the world's largest, for now. Europe is in decline. And China and India have arrived - and it's only a question of time before they outstrip the west, in terms of stock market size, and a lot of other things. They're no longer "emerging" markets - they've emerged.

We'll be talking a lot more about how to best invest in a growing Asia in coming weeks...  stay tuned.

Please note: This article was first published in Truewealth Asian Investment Daily on 02 November, 2016.

Kim Iskyan is the founder of Singapore-based Truewealth Publishing. He has spent most of the past 25 years exploring and analyzing global markets. He has been a stock analyst and research director for a big emerging market investment bank, managed a hedge fund, and sold mutual funds to private bankers. He has advised Fortune 50 companies on political risk and helped build stock exchanges from scratch in countries that few people could find on a map. He has lived and worked in ten countries, from Spain to Russia to Sri Lanka to the United States.

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