Understanding Market Capitalisation: A Glance At The $109 Trillion Global Stock Market (2024)

Market Capitalization, in the context of this article, refers to the total dollar value of a region's stock market, calculated by multiplying the price of a single share of stock by the total number of shares outstanding. It provides a snapshot of a market's size and growth, showing the collective value investors place on the companies within it.

For instance, when we mention the global market capitalisation reaching $109 trillion, we're summing up the value of all listed stocks across different countries, giving a sense of the global stock market's scale and economic relevance.

Let's break it down:

• Calculation: It's calculated by multiplying a stock's current price per share by its total number of outstanding shares. For instance, if Company A has 1 million shares outstanding priced at $10 each, its market cap is $10 million.

• Size Indicator: The total market cap is $109 trillion in our global market scenario. We're adding up the market cap of all publicly traded companies across different countries. This colossal figure reflects the cumulative value of these companies as perceived by investors.

• Market Dynamics: The market cap can change with fluctuations in stock prices. For example, if the U.S. stock market sees a surge in stock prices, its share of the global market cap could increase, affecting global distribution.

• Investor Insights: It provides insights into the market's growth, risk, and potential returns. A higher market cap often suggests a more stable market with lower volatility, making it a crucial factor for investors to consider when diversifying their portfolios geographically.

Now that you understand the significance of market capitalisation, this article's stats and information will be much more digestible.

The world has witnessed a formidable rise in global equity markets since 2003, reaching a staggering total market capitalisation of $109 trillion in 2023. The U.S. reigns supreme, holding a 42.5% share of this massive market, significantly outpacing the European Union, its nearest competitor.

But as the adage goes, change is the only constant. Goldman Sachs foresees a tilt in the scales come 2030, with the U.S. equity market capitalisation expected to shrink to 35% of the global market. With China and India leading the charge, emerging markets are predicted to match this 35% share, marking a global economic power dynamics shift.

What drives these changes?

Two main factors drive the expected change in global market shares.

First, emerging economies like India are expected to grow significantly. For example, by 2030, it's predicted that India will hold 4.1% of the world's total stock market value, and this percentage is expected to grow even more, overtaking the Euro Area by 2050. This growth is fueled by increased average income and favourable population trends in India.

The second factor is how investors value stocks in emerging markets, which is showing a pattern seen in wealthier countries like the U.S. As the average income (GDP per capita) in these emerging markets increases, the price investors are willing to pay for each dollar of a company's earnings (valuation multiples) also goes up. Thanks to a country's increasingly robust economy, investors become more inclined to pay more for stocks as they see them as less risky.

What does this mean for investors?

This unfolding scenario paints a picture of evolving opportunities. While the U.S. has always been a favoured investment hub, diversifying portfolios geographically could be a wise strategy in navigating the changing tides of global equity markets.

This landscape of shifting market caps and the rise of emerging markets underscores the dynamic nature of the global equity market, beckoning investors to look beyond the traditional markets and explore new horizons.

Source Credits: World Federation of Exchanges, IMF, SIFMA estimates, Visual Capitalist, Forbes, Bloomberg, JP Morgan, MSCI

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organisation, employer, or company. The information provided is for general informational purposes only and should not be considered professional or expert advice.