Diversify or Bust: The Investor’s Guide to a Changing World Order

If you were asked to estimate the value of the global stock market, what figure would you suggest? While it’s a given that the amount is in the trillions, you might be surprised to learn that it actually totals hundreds of trillions. In fact, as of 2023, the global equity markets are valued at 109 trillion US dollars.

This valuation is particularly remarkable when you consider that just two decades ago, the market was merely a third of its current size. With the data from authoritative sources like the World Federation of Exchanges (WFE) and the Securities Industry and Financial Markets Association (SIFMA), we gain insights into this colossal figure, illustrated compellingly by Visual Capitalist’s charts.


The Dominance of the United States

Unsurprisingly, the United States continues to hold sway over the global equity market, with a lion’s share of 42.5%. This dominance endures despite a trend of large, established companies setting up shop beyond American borders. Yet, the U.S. remains the corporate domicile for 39 of the world’s 100 largest companies. By expanding our lens to include North America as a whole, factoring in Canada’s not-insignificant 2.7% market share, the region’s collective embrace of the market extends to 45.2%.

In stark contrast stands the European Union, holding a mere 11.1% slice of the global market pie. Even with the UK’s 2.9% share as part of the EU, the transatlantic divide in market share with North America remains pronounced.

The historic ascendancy of the U.S. in global stock markets owes much to the longstanding outperformance of U.S. stocks. To illustrate, a 100 dollar investment in the S&P 500 back in 1990 would have ballooned to around 2000 dollars today, dwarfing returns from other developed markets.

Emerging Market Growth

But the landscape is shifting. China’s economy has grown twelvefold over the same period, now holding an 11.5 trillion dollar valuation and a 10.6% share of the global equity market. This growth trajectory has been accelerated by strategic decisions like the incorporation of Chinese domestic stocks into the MSCI Emerging Market Index and the internationalization of its equity markets.

Goldman Sachs projects that by 2030, the U.S. could see its global equity market capitalization share shrink to 35%. Conversely, emerging markets, especially China and India, could ascend to match and potentially eclipse the U.S., aiming for a 47% share by 2050. This projection aligns with the trend where increased GDP per capita enhances market sophistication — a pattern evident in affluent nations with more mature markets.

India is anticipated to play a pivotal role in this shift. By 2030, it’s estimated to contribute 4.1% to the global stock market’s value, with projections suggesting it might overtake the European Union by 2050 due to its strong economic prospects and expanding population.

Rising Skylines, Rising Markets: The ascension of China in the global equity market

Investment Implications

What does this evolving landscape mean for savvy investors? The past two decades have seen the U.S. market’s star shine brightest, but the glow of emerging markets cannot be ignored. The data points towards a need for geographical diversification in our investment strategies, leveraging the growth and dynamism of burgeoning economies.

Now is the critical time for investors to adjust, positioning portfolios to benefit from a broader spectrum of global growth. The key to investment success lies in being adaptable and proactive —those prepared to diversify will be best positioned to thrive amidst the evolving financial landscape, tapping into the full range of possibilities offered by both established and ascendant markets.

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