World Stock Markets Set Another New Record
According to recently released global stock market data from the World Federation of Exchanges, world stock market capitalization reached another all-time record of $63.1 trillion in October (see graph above, click to enlarge). The $3.3 trillion monthly increase in stock market value from September was the second largest monthly increase in history, just slightly behind the $3.4 trillion record set in December 1999 at the height of the Dot-com boom.
Compared to last October, world stock markets have increased in value by 33.4%, adding almost $16 trillion of new stock market wealth to the world economy in just the last 12 months.
Over the last five years, more than $42 trillion of stock market wealth has been created, as the global market capitalization rose from about $20.4 trillion in September of 2002 to more than $63 trillion in October 2007. In other words, more global wealth (measured by stock market value) was created in the last 5 years ($42 trillion total, or almost $6,500 for every person on the planet) than was created during the thousands of years it took to create the first $35 trillion of stock market value, a level first reached in 2000 (see chart above).
Among the world leaders for increases in stock market capitalization from October 2006-October 2007 (measured by percent increase in local currency) were the Shanghai SE Index (+366%), Luxembourg SE (+163%), Hong Kong (+102%), India (+88%), Brazil (+85%), and Peru (+81%).
Bottom Line: Let's assume that losses from the subprime mortgage crisis reach $300 billion over the next year as predicted, and those losses spread to other countries, as has already happened. Compared to the $16 trillion of global stock market wealth created in the last year, those subprime mortgage losses would be only 1.875% of the increase in world stock market capitalization. Stated differently, for every $1 of loss in the subprime mortgage market, more than $53 of new wealth has been created elsewhere in world stock markets.
And compared to the total stock market capitalization of $63.1 trillion, the subprime losses of $300 billion would be less than 1/2 of 1%. It'll probably take a lot more than a $300 billion credit problem to unsettle the $14 trillion U.S. economy and the $63 trillion world stock market!