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<\/p>\nBryan Taylor, Chief Economist, Finaeon<\/p>\n
Global Financial Data has collected information on stock market capitalization over the past 250 years.\u00a0\u00a0We have aggregated this data for 20 of the largest countries in the world to analyze how their share of global market cap has changed over time. Figure 1 shows each country\u2019s share of GDP as a percent of the world\u2019s total market capitalization since 1782.\u00a0\u00a0What we have discovered is that geopolitics and capital controls directly impact private investment and production. Market capitalization increases when entrepreneurs are free to invest in markets and falls when they are not.<\/p>\n
The two countries which have represented the majority of global stock markets during the past 250 years are the United Kingdom (orange) and the United States (yellow).\u00a0\u00a0\u00a0Other countries that have represented a significant portion of world market cap are India in the early part of the 1800s, France and Germany before World War I, Canada after World War II, Japan at the end of the 1900s and China in the 2000s. Let\u2019s discuss these countries and discuss how their share has changed over time.<\/p>\n
<\/p>\n
Figure 1.\u00a0\u00a0Distribution of Market Capitalization by Country from 1784 to 2023<\/b><\/span><\/p>\n Before the Napoleonic Wars (1793-1815), there were only four countries with active stock exchanges: the United Kingdom, France, the Netherlands and Denmark.\u00a0\u00a0During the Napoleonic Wars, France forced all corporations to close down, and the Dutch East India declared bankruptcy in the 1790s after it had dominated global trade for almost two centuries.\u00a0\u00a0At the same time that stock exchanges closed in France and the Netherlands, they opened in Ireland and the United States.\u00a0\u00a0The first corporation, the Bank of North America, was founded in the United States in 1782, but trading on exchanges didn\u2019t begin until the 1790s when the Bank of the United States was founded.<\/p>\n When Figure 1 begins in 1800, the United Kingdom was almost the only country in Europe with stocks trading on a regular basis.\u00a0\u00a0Although India represented about 10% of market cap, this was the British East India Co. which traded in London.\u00a0\u00a0If you combine the United Kingdom and India (and Ireland) as a single country, they would represent 90% of global stock market capitalization.\u00a0\u00a0The only other country with any significant market cap was the United States.<\/p>\n During the early 1790s, the first canal bubble occurred in England, bringing over 100 new canals into existence in Britain, and pushing some canal stocks up to four times par before the market collapsed.\u00a0\u00a0A second canal bubble occurred in 1811.\u00a0\u00a0In 1825, the South American Bubble occurred and in the 1840s, railway mania struck Britain and the rest of Europe.\u00a0\u00a0Each of these events increased the number of companies that was listed and the market cap of those companies, both in absolute terms and as a share of GDP.\u00a0<\/p>\n In 1815, Britain and India represented 82% of global market cap and the United States 13%. After Napoleon was defeated in 1815, Europe enjoyed 100 years of peace during which government debt declined and stock market capitalization rose.\u00a0\u00a0After the Napoleonic Wars, government debt in Britain was over twice GDP while stock market capitalization was one-tenth of that.\u00a0\u00a0By 1914 when World War I began, market cap in Britain was over twice GDP while government debt was 40% of GDP. This is shown in Figure 2.\u00a0\u00a0\u00a0\u00a0Market cap increased from\u00a0\u00a3339 million in 1815 to\u00a0\u00a314,320 million in 1914. However, as can be seen in Figure 1, Britain\u2019s share of global market cap shrank from 70% of global market cap to 40% between 1814 and 1914.\u00a0\u00a0This occurred because the market cap of non-British companies, especially the United States, France and Germany, grew even faster than British market cap.\u00a0\u00a0Since 1914, Britain\u2019s share of global market cap has continually shrunk until today, it is less than 5% of global market cap.<\/p>\n Figure 2.\u00a0\u00a0United Kingdom Market Capitalization and Government Debt as a Share of GDP, 1694-2023<\/b><\/span><\/p>\n In 1801, the Banque de France was established, and French stocks began trading once again after the stock exchanges had been closed during the French Revolution.\u00a0\u00a0During the next few decades, stock exchanges were established in most European countries.\u00a0\u00a0Banks were established in most countries, and then in the 1830s, railroads were built to link European markets together.\u00a0\u00a0The market cap of railroads exploded in the 1840s, but then collapsed after 1845.\u00a0\u00a0European countries began to encourage corporations to form and expand, and by the time that World War I began, stock market cap exceeded government debt in most European countries.\u00a0\u00a0Both Germany and France showed large increases in the size of their markets.\u00a0\u00a0Austria-Hungary and Russia also grew rapidly.\u00a0\u00a0By 1873, most European countries were on the gold standard and exchange rates were fixed between each country.\u00a0\u00a0This enabled the United States, Russia and other countries to issue stocks and bonds to build the infrastructure of their economy using capital from other European countries to enable their countries to grow.\u00a0\u00a0When gold was discovered in South Africa at the end of the 1800s, capital flowed into South Africa as well.<\/p>\n Almost every country in the world saw rapid growth in stock markets in the decades prior to the outbreak of World War I.\u00a0\u00a0Most countries were on the gold standard and capital could flow freely from one country to another, in part by buying and selling stocks and bonds.\u00a0\u00a0There was truly a global market where returns were similar between countries because capital sought out the best companies to invest in.\u00a0\u00a0\u00a0In 1914, the United Kingdom represented about 38% of global market cap and the United States about 28%.\u00a0\u00a0Both France and Germany represented about 9% of global market cap each. Russia, Austria, Belgium and Canada each represented between 2% and 3% of global market cap. All other countries represented less than 1%.<\/p>\n Then World War I began. Stock markets closed in almost every country in the world.\u00a0\u00a0During the next 65 years, market cap as a percent of GDP would hardly budge. In many countries, especially among those countries that participated in World Wars I and II, market cap as a share of GDP declined, as can be seen in Figure 3.\u00a0\u00a0Countries that became Communist, such as Russia, eliminated their stock market entirely. Between 1914 and 1945, the world suffered two world wars and the Great Depression.\u00a0\u00a0Attempts to return the world to its pre-World War I condition failed and by 1950, most of the major industries in Europe had been nationalized by the government, and markets were closed down in Eastern Europe.\u00a0\u00a0Many European governments rationalized that they had successfully managed the economy during World War II, so why shouldn\u2019t they be able to do so during peace?<\/p>\n Figure 3.\u00a0\u00a0Stock Market Capitalization as a Share of Global GDP, 1800 to 2023<\/b><\/span><\/p>\n On the other hand, the market cap of the United States has continually increased over time, both in absolute terms and as a percentage of global market cap. At the end of 2021, it was over $50 trillion.\u00a0\u00a0The US market cap grew rapidly between the Civil War and the 1920s when not only were railroads built to unite the country, but new companies were founded in every sector of the economy.\u00a0\u00a0After World War I, American companies expanded overseas to increase their profits and the size of their market cap.\u00a0\u00a0Coca Cola became a global brand as did many other American companies. Even with the expansion in emerging markets and Asia during the twenty-first century, and US GDP shrinking to one-quarter of global GDP, the United States still represents over half of the global market cap.\u00a0\u00a0The internet and technological change have enabled the United States to expand its markets to the entire world.\u00a0\u00a0One would have thought that the United States\u2019 share of global market cap would shrink over time, but instead it has remained fairly steady during the past 100 years.<\/p>\n The Anglo countries (the United States, the United Kingdom, Canada, Australia and New Zealand) continued to favor financial markets as a way of running the economy, but this was not true in continental Europe.\u00a0\u00a0During the 1950s and the 1960s, the Anglo countries represented between 85% and 90% of global market cap.\u00a0\u00a0In the 1970s, Anglo countries\u2019 share of global market cap began to decline, in part because of the rise of Japan. Japan\u2019s share of global market cap rose from 4% in 1970, to 15% in 1980 and to 42% in 1988.\u00a0\u00a0At that point, Japan\u2019s market cap was greater than that of the United States.\u00a0\u00a0However, its market cap steadily declined from there as the Japanese market bubble burst.\u00a0\u00a0Today, Japan represents around 6% of global market cap, outranked only by the United States.\u00a0\u00a0China\u2019s share of global market cap has risen from zero in 1990 to 14% today; however, many of China\u2019s shares are not investible outside of China, and China represents only 3% of S&P\u2019s Broad Market Index, about half of Japan\u2019s share and about 5% of the United States\u2019 share.<\/p>\n Figure 1 makes it obvious why an index of the World excluding the United States is so important.\u00a0\u00a0The United States represents about 50% of global market cap.\u00a0\u00a0The United States has outperformed the rest of the world during the twenty-first century, returning 2.51% per annum while the World excluding the United States has lost 2.28%.\u00a0\u00a0Although emerging markets have returned 3.98% in real terms since 2000, all of this gain came between 2000 and 2008.<\/p>\n The United States\u2019 market cap is almost 200% of its GDP.\u00a0\u00a0The United States has a number of technology companies that have grown as a result of the spread of the internet and will take advantage of the spread of AI or any other new technology which comes along. The rest of the world benefits from this growth as the products developed in the United States are shared with the rest of the world.\u00a0\u00a0During the coming century, corporations from emerging markets will have a larger impact on the global economy and will spread throughout the world as American companies did in the twentieth century.<\/p>\n The lesson of the past two hundred years is that free markets foster growth.\u00a0\u00a0Restrictions on markets, as occurred between 1914 and 1981 in Europe limit growth. The United States has maintained its 50% share of global market cap despite all predictions to the contrary of America\u2019s share of the global stock market shrinking.\u00a0\u00a0China\u2019s recent efforts to control the stock market will limit its growth in the future.\u00a0\u00a0\u00a0If other emerging markets want to continue to grow their stock markets and their economies, they should not place restrictions on their markets.\u00a0\u00a0With population shrinking in most of the developed world, it will be even more difficult to grow economies in the future.\u00a0\u00a0There was no growth in stock markets as a percentage of GDP between 1880 and 1980.\u00a0\u00a0We can only hope that, because of government restrictions, this will not be true of stock markets between 2000 and 2100.<\/p>\n","protected":false},"excerpt":{"rendered":" Bryan Taylor, Chief Economist, Finaeon Global Financial Data has collected information on stock market capitalization over the past 250 years.\u00a0\u00a0We have aggregated this data…<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1,149],"tags":[],"class_list":["post-3012","post","type-post","status-publish","format-standard","hentry","category-insights","category-june-2023"],"acf":[],"_links":{"self":[{"href":"https:\/\/maxrezmedia.com\/website_131ddb8a\/wp-json\/wp\/v2\/posts\/3012","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/maxrezmedia.com\/website_131ddb8a\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/maxrezmedia.com\/website_131ddb8a\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/maxrezmedia.com\/website_131ddb8a\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/maxrezmedia.com\/website_131ddb8a\/wp-json\/wp\/v2\/comments?post=3012"}],"version-history":[{"count":2,"href":"https:\/\/maxrezmedia.com\/website_131ddb8a\/wp-json\/wp\/v2\/posts\/3012\/revisions"}],"predecessor-version":[{"id":3017,"href":"https:\/\/maxrezmedia.com\/website_131ddb8a\/wp-json\/wp\/v2\/posts\/3012\/revisions\/3017"}],"wp:attachment":[{"href":"https:\/\/maxrezmedia.com\/website_131ddb8a\/wp-json\/wp\/v2\/media?parent=3012"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/maxrezmedia.com\/website_131ddb8a\/wp-json\/wp\/v2\/categories?post=3012"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/maxrezmedia.com\/website_131ddb8a\/wp-json\/wp\/v2\/tags?post=3012"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Stock Market Capitalization in the 1800s<\/b><\/span><\/h3>\n
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<\/p>\nThe Growth of the United States Stock Market<\/b><\/span><\/h3>\n
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<\/p>\nInto the Twenty-First Century<\/b><\/span><\/h3>\n