Monday, December 03, 2007

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!


At 12/03/2007 7:01 AM, Anonymous Anonymous said...

And what part of that increase in paper wealth is due to speculation?

In the late 90s we had the dot com boom (then bust), then the real estate boom (then bust) and now the emerging markets boom?

If the subprime mortgage debacle can occur here in the U.S. can you imagine what kinds of creative schemes are in play right now in the rest of the world?

At 12/03/2007 9:55 AM, Anonymous Anonymous said...

or one could say the stock cap growth is kind of like hosuing prices - which never fall. Dow 20,000, party like it is 1999. Sad

At 12/03/2007 10:33 AM, Blogger Colin said...

We always have booms and busts. The key is long-term trends. And over the long term both stocks and real estate tend to appreciate.

At 12/03/2007 4:20 PM, Anonymous Anonymous said...

With the rise of the globalized economy, we are seeing a tremendous increase in the amount of money being transferred around the world on a daily basis. According to the Wall St. Journal, the amount of cash moved per day is equal to the entire annual GDP of China.

There are certainly risks of contagion for example, the Asian crisis of the 1990s. Access to investment financing, economic opportunities opened up through the the rise of globalization and rapid technological change offer the potential for a 21st century revolution on a global scale.

Such a revolution would be similar to the industrial revolution but will be unprecedented in human history. It may also offer tremendous improvement in the quality of human life. I believe that we have the knowledge of the previous industrial revolution to ensure that environmental protection and sustainability are an important component.

It is a most interesting time to be alive.

At 12/19/2007 6:42 AM, Anonymous Anonymous said...

How much of this effect is due to the falling dollar?

You should redo this in Euros. It would look different.


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