Four views of the world

The world, by population, is now an Asian-led planet. But if you examine the world through the prism of the stock market, wealth generated and military capability a different story emerges.

| 5 min read

China and India between them account for 2.85 billion out of the 8 billion people on earth – or more than 36% of humanity. Pakistan, Bangladesh, Indonesia and Japan are also in the top ten. The US has just 4% of the world’s population, with the EU also on a single-figure percentage.

If you look at the world in terms of output and incomes, the US is still firmly in the top spot, followed by China and Japan. India makes it into the top group alongside Germany, the UK and France. The top seven economies account for more than half the global total, with the US accounting for a little under a quarter of the whole.

If you view the world in terms of military power, the US dominates. It spends so much more than any other country. Its advanced technology and substantial personnel can be deployed using 13,900 planes and ten aircraft carriers.

Russia is often rated in second position, with substantial conventional forces and a large nuclear arsenal, followed by China with a fast-growing presence. NATO incorporates most European countries within the US coalition – and is the world’s single most powerful combined force.

America is the equity-market behemoth

If you look at the world through the prism of the stock market, then a very different picture emerges than the patterns of population and GDP. The US dominates totally and has come to represent an even-larger share of the total in the last few years. Lockdown favoured US technology companies, and the partial recovery continues to help their sales. If we look at the composition of the all-world index, the US is now 59% of the total stock market wealth, followed by Japan (6%) and China (4%). Taiwan adds another 1.7% to the total.

  • 69% America dominates the world index of advanced-country shares

In the better-known world index, which just measures the advanced-country markets, the US is now a massive 69%, with Japan ‘s 6.4% placing it second – and the UK a distant third with 3.9%. As we enter a new year, many will ask again whether this US exceptionalism going to carry on? Could there be some catch up from the other advanced countries, or could the emerging world once again persuade enough investors that it will outgrow the richer countries, therefore generating many profit-making opportunities for savers?

A less US-centric 2022?

There are powerful arguments to suggest the US might not have the same following wind in 2022 that it has enjoyed in recent years. The endless printing of additional dollars to boost financial asset prices may well be halted in the early months of next year, removing an important prop. The Biden administration may get approval for substantial tax rises on companies and rich individuals, which will depress earnings of companies and the sentiments of some investors. There is a danger the Fed could overdo its belated response to higher inflation and slow the economy too much.

There are also some continuing reasons why much of the rest of the world will struggle to outperform, even after this huge swing in relative values. The world’s second-largest economy, China, has a stock market still well below its 2015 high, despite several years of good growth. China is embarking on more regulation of private sector companies, more transfers of activity to state owned enterprises, and is attacking wealthy and entrepreneurial people. None of this makes for good support for the stock market.

It would be surprising if the US had another year leading the tables of stock-market gains by a wide margin.

Latin America remains dogged by erratic public policy, several countries with high inflation and little discipline in public finances. It also deals with a worldwide mood that is increasingly worried about the natural resource and mining activities that have underpinned some of these country’s stock market wealth.

Headwinds in the developed world

In the European Union (EU) too, the election of an SPD-led coalition in Germany, the bloc’s largest economy, heralds much-tougher green policies. With the EU itself wishing to accelerate the green transition this poses issues for the traditional fossil-fuel based businesses, led by Germany’s successful and important vehicle industry. It means more-rapid closures and write offs of coal mines and fossil-fuel power generation.

Japan will follow aggressive expansion policies with further monetary and fiscal stimulus from the new government. Maybe it will at last deliver a bit more stock market performance, after suffering from the pandemic, an ageing population, and low vaccination rates.

It would be surprising if the US had another year leading the tables of stock-market gains by a wide margin after such a good run, but several of the other major economies and markets have their own headwinds to battle. Maybe 2022 will find a few more areas that do better than the US at last. But, clearly, the continuing growth and success of the US economy remains central to further positive returns for savers in the world as a whole.

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Four views of the world

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