Thursday, January 17, 2008

Global Stock Market Wealth in 2007 Sets Records

According to data just released by the World Federation of Exchanges, global stock market capitalization reached a new record of $60 trillion in 2007 (see top chart above). The increase in stock market value of $10 trillion during the year also established a new all-time record for the largest annual increase of global stock market wealth in history, beating the previous record of a $9.66 trillion increase in 2006 (see bottom chart above).

Consider also that $38.2 trillion of world stock market value was created between 2002-2007 ($22.5 to $60.7 trillion). In the chart above, notice that world stock market value in 1999 set a new record of $35 trillion before declining for three consecutive years (2000, 2001, 2002) during the bust.

Think about it: It took the entire history of the world until 1999 to create the first $35 trillion of stock market wealth; and then more than that amount of wealth was created ($38.2 trillion) in just the most recent five-year period from 2002-2007! Not a bad record for wealth creation, largely because of globalization and the most significant spread of free market capitalism in history.


At 1/18/2008 2:09 AM, Anonymous Anonymous said...

When things are valued in against currency that is losing value that's not a big surprise, How about comparing against the Euro. I think the picture would look a lot different.

At 1/18/2008 8:20 AM, Blogger Ironman said...

Anonymous: Maybe, maybe not. Valuing an entire market in different currencies can change the picture, but not necessarily accurately (the same is true for doing so in dollars, but to a lesser extent given its still leading position for being the currency of choice for many industries, such as oil, chemicals and aircraft, to name just three.)

What makes it really complicated is that so many publicly-traded companies have an international component to their businesses. That means that changes in the relative value of currencies in the countries in which they do business has an effect on their market valuation, on top of the stock market's valuation of that international business.

For example, Tata doesn't just do business in India, GM doesn't just do business in the U.S. and BMW doesn't just have operations in Germany (to pick on carmakers).

All three however do a significant portion of their business in dollars in the markets in which they operate. This is why presenting the data over time using U.S. dollars probably provides the clearest picture.

At 1/18/2008 10:01 AM, Anonymous Anonymous said...

How much of the increase in market cap in recent years is due to the globalization of the exchanges through inter-listed equities rather than pure market cap increases? i.e., double counting of large cap equities that trade on all the major exchanges.

The most recent market cap increase is impressive on its face but let's not get too carried away. Measuring from the 1999 prior cycle peak to the end of 2007 yields an increase of ~ $25 trillion in market cap or a compounded return of ~8%. That is not particularly impressive in a world economy growing at about the same nominal rate.

At 1/30/2008 10:25 PM, Blogger Unknown said...

t. It is not just that the dollar is a softening, declining currency, it is ridiculous to equate stock market cap with wealth. Times have changed. Local banks carried their own mortgages. Now mortgage brokers sell TDs to the stock market. This adds to market caps, but not to wealth. Infrastructure is fundamental to economic health, but mostly it is provided by governments [despite trends toward corporatization] and is not traded on the markets. Even if they were to be traded on the market it would not increase wealth.

At 5/04/2008 2:23 AM, Blogger Unknown said...

Marmico made my point. There is multiple counting that occurs when corporations own stock in each other. I have never seen an estimate of how significan this is.

At 9/17/2008 5:41 PM, Blogger Rob Spooner said...

It's amusing to read this eight months later. The enormous creation of wealth on account of capitalism expanding globally is turning out to be an illusion, diminishing daily like a snowflake over a campfire.


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