A V-shaped recovery of almost 63% from the March low of $61.6 trillion has helped Global market cap global m-cap reach the milestone. On March 24, the global market cap had fallen to $61.6 trillion — a level that was not seen since 2016, according to Bloomberg data. It has risen 15.5% in the year so far from $87 trillion at the close of 2019.
A large part of this rally was led by tech stocks in the US, popularly known as FAANGM (Facebook, Apple, Amazon, Netflix, Google and Microsoft), market players said. At close of trading last week, the US had an m-cap of $41.6 trillion, while China’s was $10.7 trillion. India, with a market cap of about Rs 180 lakh crore or $2.4 trillion, was placed 10th.
The US and China have increased their market share in 2020, while all the other eight in the top 10 m-cap league have lost their shares.
From 39.5% at the start of the year, the US now has a share of over 41.6% to lead the global market cap table, while China with 10.7% from 8.4% at the start, is the second most valued. Likewise, India’s share currently is 2.4%, down marginally from 2.5% at the start of the year.
On the other hand, Japan — the country with the third highest market cap — grew from $6.3 trillion to nearly $6.8 trillion, but its share in global m-cap slid from 7.2% to just over 6.7%.
Canada is the only country that increased its position in the global league table to seven from eight, replacing Saudi Arabia, thanks mainly to Saudi Aramco’s m-cap which is almost at the same level it was at the start of the year, while a rally in tech stocks lifted Canada’s market cap.
America’s share of the global market-cap was 39.5 percent at the beginning of 2020, which has now increased to 41.6 percent. On the other hand, the market share of China is 10.7 percent, which was 8.4 percent at the beginning of the year. Japan’s market cap rose from $ 6.3 trillion to $ 6.8 trillion, with the third-highest market cap, but its share in the global market-cap decreased from 7.2 to 6.7 percent. Similarly, India’s share has also come down to 2.4 percent from 2.5 percent at the beginning of the year.
The Dow fell 0.69% Monday, led by Intel and broad-based weakness in value stocks as rising Covid-19 restrictions offset optimism over an imminent vaccine roll out and signs of progress on a stimulus deal. The pan-European Stoxx 600 index closed 0.3% lower, with the majority of sectors finishing in negative territory. U.K. banks and homebuilder stocks were under pressure on the index and sterling was down nearly 1% against the dollar. Gold jumped over 1% on U.S. stimulus bets. Bonds were bid as well.
The path to a $908 billion stimulus bipartisan deal in the U.S looks set to clear up in the coming days as lawmakers are expected to agree a stopgap spending bill by the Friday deadline to keep the government funded, buying more time for lawmakers to iron out their differences on stimulus.
In 2020, stock markets in the United States accounted for over 54 percent of world stocks. The next largest country by stock market share was Japan, followed by the United Kingdom. The New York Stock Exchange and the NASDAQ are the largest stock exchange operators worldwide.
Market capitalization mentioned earlier as a criteria for compiling this list simply refers to the market value of a public company's outstanding shares. The market capitalization of all stocks that trade on these exchanges is derived by multiplying the share price by the number of shares. To make this list more credible, we only take into consideration the current market capitalization of each of these exchanges and not that of previous years wherever that's possible.
What is the Stock Market Capitalization-to-GDP Ratio?
The stock market capitalization-to-GDP ratio refers to a metric that is used to evaluate whether or not a given market is valued accurately in accordance with its historical average. The ratio can be calculated for a specific market, such as the London Stock Exchange (LSE), or can even be applied to the global market. It is calculated by dividing the stock market capitalization of an economy by the gross domestic product of that area.
The term was popularized by a veteran investor and one of the richest people in the world, Warren Buffet, and subsequently came to be known as the “Buffet Indicator.” He claims that it is the best measure of where the valuation of a given security stands at any given point in time.
Mathematical Expression for Stock Market Capitalization-to-GDP Ratio
The stock market capitalization-to-GDP ratio is expressed in a ratio or a percentage form and is calculated using the following formula:
Market Capitalization to GDP = (SMC/GDP) * 100
Where:
SMC – Stock market capitalization
GDP – Gross domestic product
The total value of all the publicly-traded stocks in the US can be calculated using the Wilshire 5000 Total Market Index. The index represents the total value of all the stocks in US financial markets. The GDP number used is one that is reported on a quarterly basis.
Inferences from the Stock Market Capitalization-to-GDP Ratio
The stock market capitalization-to-GDP ratio is a technical measure of the value of all the publicly listed stock of all companies in a given economy divided by the gross domestic product of that economy. The ratio enables a comparison of the value of an economy’s stocks, on average, to the value of the total output produced by that economy in a given time period. It gives that percentage of GDP that is representative of the value of the stock market.
Generally, in a situation when the ratio is greater than 1, or 100%, it implies that the market is currently overvalued. On the other hand, when the ratio is lesser than 0.5 or 50%, it shows that the stock of that economy is undervalued. The historical average of the US market is 0.5.
In a situation where the ratio falls anywhere between 0.5 to 0.75, or 50% to 75%, it is said that at the current moment, the market is accurately or modestly valued. If the ratio falls between 0.75 to 0.9, or 75% to 90%, it is said to be modestly valued or valued fairly. Lastly, if the ratio falls within the range of 0.9 to 1.15, or 90% to 115%, it is considered to be a modest overvaluation of the market.
Factors that Impact the Stock Market Capitalization-to-GDP Ratio
The value of the market cap to GDP ratio is affected by the fraction of companies that are public as opposed to the number of private companies in the economy. Moreover, trends in the initial public offerings (IPOs) of newly public companies also impact the value of the ratio.
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