As part of our research, we track the fiscal and monetary policies of countries around the world. We believe government policies are a precursor to change and that this change can lead to economic devastation, such as the nationalization of oil companies in Venezuela, or generate substantial growth, such as Colombia’s successful efforts to encourage foreign investment.
Historical context allows us to gauge the outcome of these situations. For example, these pie charts from Credit Suisse show the relative sizes of the world stock markets from two very different periods.
In 1899, London was the world’s leading financial center, and the U.K. made up 30 percent of the global stock market. The U.S. ranked second with just under 20 percent but was gaining momentum. Other European countries held significant market caps, namely France and Germany with 14 and 7 percent, respectively.
Over the next 100 years, power shifted west as the expense of two world wars took its toll on Europe. The U.S., which boasted a booming manufacturing industry and the vast resources needed to fuel it, doubled its market cap to 41 percent of the world’s total by 2010.
The U.S. wasn’t the only one to double in size: Japan’s stock market grew from 4 percent to 8 percent over the same period. Today the financial centers of New York and Tokyo are larger than London’s.
What’s notable is that the 19 countries covered in 1899 represented 89 percent of the global stock market; now the same 19 only account for 83 percent. In the meantime, the “Other” category has quadrupled in relative size. While not defined, as we traveled to more than 30 countries in recent years, we surmise that the “Others” would not be in the developed nations of the world, but located in emerging markets.
China has embraced capitalism, Brazil has implemented solid policies, India has ushered in a growing middle class. We think these developing countries resemble the U.S. in its infancy and offer tremendous potential for investors over the next 100 years.
