Market Levels Suggest Better Opportunities Abroad
Percentages of Total World Market Capitalization and Global GDP
Sources: Capital Group, FactSet, MCSI, RIMES, Thomson Reuters. As of 9/30/17. Market capitalization is each country or region’s weight within MSCI All Country World Index (ACWI). GDP is each country or region’s percentage of total world nominal GDP.
Most of the world’s major equity market indexes achieved or neared multiyear highs in 2017, as investors set aside concerns about politics and focused on the broadening expansion. European stocks went on a tear in 2017, rising 23% and outpacing U.S. shares for the first time since 2012. Emerging markets equities also outpaced the U.S., soaring 32%.
In fact, market levels suggest that these better investment opportunities may continue in non-U.S. markets. Consider that the U.S. accounts for 52% of global market capitalization, near a historic high, and its market cap is 106% of its GDP. Granted, a number of factors justify a relatively higher share of market cap for U.S. companies, as it is the home market for many of the world’s dominant companies, and roughly 40% of Standard & Poor’s 500 Composite Index company earnings come from overseas.
Also consider that the forward P/E ratio for the U.S. market, at 17.9, is notably higher than other major markets. Conversely, the emerging markets share of global market cap appears relatively modest compared with its contribution to GDP. And emerging economies are expected to contribute half of global GDP by 2021.