Does This Make Any Sense?

Someone recently sent me a presentation called the world in charts showing various country breakdowns by different metrics.

Here’s world GDP broken down by size and region:

Now here’s world population:

So the U.S. has a quarter of economic production but less than 5% of the world population. Pretty impressive.

Now let’s look at the world stock market capitalization by country (based on the Vanguard Total World Stock ETF weights):

Now let’s put all three of these together for the 10 largest economies on the planet:

The biggest outliers here by far are the United States, China, and India.

China’s economy is two-thirds the size of the U.S. economy but has 4 times as many people. Yet the U.S. has a stock market capitalization that’s nearly 16 times larger than China’s.

India has 4 times as many people as the United States but an economy that’s one-tenth the size and a stock market that’s 1/50th the size.

Does this make sense?

Yes and no.

Yes because the U.S. has a more diversified, dynamic, mature, innovative economy than the rest of the world. Our rule of law makes it harder for the government to take over huge corporations and such. There’s less corruption here. Our tech companies seem to be the most innovative on the planet by far and it’s not even close.

The U.S. not only helped win the war during World War II, but we also came away unscathed economically. This set the United States up for decades of relative advantage over the rest of the world, most of which was still cleaning up the mess from this drawn-out war.

And the world economy and large corporations are more global than ever, so the lines are becoming blurred in terms of the impact a single country’s economy has on its own stock market.  Just because a company happens to be domiciled in a certain country, does not mean all of its sales come from that country. U.S. companies are benefitting from the growth in the rest of the world.

We also have an economy that’s made up roughly 70% by consumer spending, something few other countries can claim.

But in other ways this makes no sense whatsoever.

I was always taught that economic growth is derived mainly from population growth and productivity growth. Further, I was taught that, over the very long-haul, the stock market should grow somewhat in line with economic growth.

Shouldn’t the rest of the world catch up eventually?

Won’t they figure this out at some point?

I can’t figure out if these numbers are positive or negative for the rest of the world when it comes to the future growth of their markets.

On the one hand, the U.S. completely dominated the last 100+ years when it comes to building companies and equity market value. Maybe the rest of the world is due for some mean reversion in that respect. Otherwise the U.S. is going to swallow up the rest of the world’s stock market value.

On the other hand, the fact that two countries on this list, China and India, make up nearly 40% of world population but just 5% of the world’s stock markets could mean they’ve already missed the boat.

The hope for these emerging markets is they are still far less mature than the U.S. when it comes to financial markets and extracting value from their corporations. We have a huge head start.

When thinking about the next 50-100 years, this is basically like the old bet when Tiger Woods was in his prime playing in a major championship. Who you got: Tiger Woods or the field?

The U.S. is obviously Tiger in this scenario while the rest of the world is the field.

The probabilities would tell you to take the field 9 out of 10 times. But your gut would almost always tell you to take Tiger because he’s so dominant.

Tiger in his prime is like the U.S. stock market. The hope for the rest of the world is that even Tiger Woods came back down to earth after years of dominating the PGA Tour.


And here’s our Animal Spirits highlights from this week discussing about the economy and market Paul Volcker inherited in 1979:

Subscribe to the Animal Spirits playlist to watch more of our videos every week.

Further Reading:

Now here’s what I’ve been reading this week:

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.