U.S. Stock Market Dominance: The World’s Biggest Anachronism?

It is a well-known fact that the United States dominates global defense spending, accounting for 43% of the world total (as of 2010). But could it be true that the country accounts for a similar share of the value of the global stock market?

A. Yes
B. No, it’s half that (and in line with its global GDP share)
C. No, it’s much smaller (and in line with its global population share)
D. No, it’s much, much smaller than that

A. Yes is correct.

In terms of market capitalization, the United States accounts for 40% of the value of the global stock market (as of the end of 2010). That is indeed very close to the country’s 43% share of global defense spending.

Global market capitalization, estimated at $35.5 trillion as of year-end 2010, is the total value of all outstanding shares of publicly traded companies around the world. At that level, it's equal to half of global GDP — the value of all goods and services produced around the world — which stands at about $69 trillion.

B. No, it’s half that (and in line with its global GDP share) is not correct.

The U.S. share of global GDP is estimated to be 19.4%. The country's share of the value of the global stock market is thus twice as large as its share of the global economy.

The United Kingdom is similarly over-represented in the global stock market. While the country accounts for 7% of global market capitalization, its global GDP share is just 2.9%. In contrast, Germany accounts for 3.9% of the global economy, while accounting for 3% of the value of the global stock market.

C. No, it’s much smaller (and in line with its global population share) is not correct.

The United States accounts for 4.6% of the global population. Thus, the country's share of the global stock market is nearly nine times as large as its share of the global population.

While stock prices are always changing, most markets these days tend to move more or less in the same direction. Thus, despite the recent sharp downturn in U.S. stocks, it will be quite a while until the United States' global market capitalization share decreases significantly. This will most likely occur gradually as emerging economies grow their companies and markets.

D. No, it’s much, much smaller than that is not correct.

All emerging market economies still have a very small share of world market capitalization. For example, India has 17.9% of the global population, but represents only 1% of the value of the global stock market. Russia and South Africa each also account for just 1% of global market capitalization.

China, with a 19.6% share of the global population, accounts for 5% of the value of the global stock market — if one combines the values of the mainland stock exchanges with those of the Hong Kong and Taiwanese stock exchanges. At that level, five times India’s, it still accounts only for as much of the global stock market as does Canada, a nation of under 35 million people.

Word count: 509