Since 2003, global equity markets have tripled in size and reached a market capitalisation of USD 109 trillion in 2023.
Underpinning the rise in asset value growth over the past three decades has been the extraordinary amount of liquidity pumped into the financial system via money supply and an extremely accommodating ultra-low interest rate environment.
Visual Capitalist provides a fantastic visual representation of the global equity market breakdown, clearly showing how the size of the US equity market dwarfs the next closest economy, the European Union. Whilst staggering, the size differential is easily explained given the US is home to 39 of the 100 largest companies in the world.
Source: Visual Capitalist
When considering what this means for the future investment landscape, Goldman Sachs (GS) research estimates that the US equity market cap will fall from 42.5% to 35% of the overall global market by 2030. Meanwhile, emerging markets (EM) including China and India are collectively expected to reach 35% over the same period. By 2050, GS anticipates that EM will overtake the size of the US market, reaching 47% of global stock markets versus ~27%.
The key drivers underscoring this is the significant acceleration in growth of projected gross domestic product (GDP) per capita for emerging economies and rising valuation multiples driven by higher GDP per capita.
What are the implications for investors?
While US equities have previously provided strong outperformance, it does not necessarily mean it will continue. Given the structural shifts underway in the form of growing populations, rise of the middle class and GDP growth, investors should consider the benefits of diversifying their portfolio geographically.
Disclaimer: Clime Asset Management Pty Limited | AFSL 221146 | ABN 72 098 420 770. The information provided in this post is intended for general use only. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information contained therein. Please consider the relevant disclosure document/s before investing in one of our products. Investment in securities and other financial products involves risk. An investment in a financial product may have the potential for capital growth and income but may also carry the risk that the total return on the investment may be less than the amount contributed directly by the investor. Investors risk losing some or all of their capital invested. Past performance of financial products is not a reliable indicator of future performance or returns.
