The World's Biggest Stock Markets

Published in Investing on 30 December 2011

Why stick to just UK-listed shares, when this exciting world awaits you?

The world's first stock markets started appearing in Europe in the 15th and 16th centuries.

As more and more limited-liability companies were created, their thirst for capital for investment and expansion led to multiple booms and busts. What's more, thanks to massive growth in global trade, listed companies began growing exponentially, as did national stock exchanges.

A whole world of markets

Of course, during the boom years of the Noughties, global stock values soared.

Indeed, by 2007, the total value of companies listed on global stock exchanges neared $64 trillion, according to data compiled by the World Bank. In comparison, world gross domestic product (total global output) reached $65 trillion in 2007.

However, the arrival of a global credit crunch in the summer of 2007 put a stop to the market leaps of 2003 to 2007. What's more, as developed-world economies went into recession, global stock prices plunged. Thus, in 2008, more than $29 trillion was wiped from the market value of global equities, the World Bank's figures show.

In 2010, the World Bank's survey listed 109 nations with one or more stock exchanges. These ranged in size from the mighty US exchanges (total market value: $17.1 trillion) to the tiny Armenian stock exchange (market cap: under $28 million).

A dozen enormous exchanges

Here are the world's 12 largest stock exchanges, ranked by market capitalisation in 2010:

CountryMarket value
($ trillion)
United States17.1
China4.8
Japan4.1
United Kingdom3.1
Hong Kong2.7
Canada2.2
France1.9
India1.6
Brazil1.5
Australia1.5
Germany1.4
Switzerland1.2
Total43.1

Source: World Bank

As the birthplace of modern consumer capitalism, the US dominates this list. The market value of shares listed in the US exceeds $17 trillion, or almost a third (31%) of the global total of $55.3 trillion. In fact, the American stock exchanges are so large that they exceed the combined value of the next five biggest markets ($16.9 trillion).

In second place is fast-growing China, whose listed companies have a combined market value approaching $5 trillion. Japan takes third place, with a market value of just over $4 trillion.

Despite accounting for less than 1% of the world's population, the UK is a bastion of corporate enterprise. Hence, London-listed companies have a total market value above $3 trillion. Just behind the UK is the bustling, bubbly Hong Kong Stock Exchange, at $2.7 trillion.

Once outside of the top five, the market value of listed companies drops off dramatically. Canada is in sixth place ($2.2 trillion), France is seventh ($1.9 trillion) India is eighth ($1.6 trillion), Brazil is ninth ($1.5 trillion) and Australia is in tenth place ($1.5 trillion).

Bringing up the rear of our top 12 are Germany ($1.4 trillion) and Switzerland ($1.2 trillion). In total, the collective value of companies listed in these 12 countries is more than $43 trillion. In other words, these dynamic dozen account for almost four-fifths (78%) of the global total of $55.3 trillion.

Sharing the wealth

While most of these stock markets are roughly where I expected them to be, I did learn one or two things when crunching these numbers. The top five are pretty much as I'd expected, so the surprises came from the lower rankings.

For example, I had no idea that Canada's stock market was over 50% larger than Germany's ($2.2 trillion versus $1.4 trillion). Also, India and Brazil have been storming up this league table, partly thanks to rapid growth and the mounting middle classes in these emerging economies.

Another shock was the weakness of Continental capitalism, with Spain relegated to 13th place and Italy a long way off the pace in 25th place.

Once again, this survey demonstrates the virtue of investing globally, rather than regionally. Why invest solely in UK-listed stocks, when a whole world of listed companies awaits you outside of these borders?

In short, while there are extra risks involved in investing in foreign equities, the potential rewards could be well worth the effort for bargain-hunters!

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

BarrenFluffit 30 Dec 2011 , 12:24pm

Logically you'd expect a fairly linear relationship between absolute GDP and market value. But that is nowhere near the case and illustrates how much effect nation states and their policies have.

F958B 30 Dec 2011 , 12:33pm

There are plenty of UK-listed multinationals, with the benefit of UK regulation/accounting but diverse overseas revenues.

Best of all, I have a good understanding of the UK language, UK accounting and other quirks of the UK culture which gives me an advantage over "foreign" investors who wish to invest in the FTSE, just as they have an advantage over me if I chose to invest in their home market.

The grass often looks greener on the other side.

CunningCliff 30 Dec 2011 , 12:53pm

BarrenFluffit wrote, "Logically you'd expect a fairly linear relationship between absolute GDP and market value. But that is nowhere near the case and illustrates how much effect nation states and their policies have."

Exactly right, BF. In fact, Andrew Smithers strongly points out the lack of correlation between GDP growth and stock-market returns in his excellent book "Wall Street Revalued: Imperfect Markets and Inept Central Bankers".

Well worth a read, see:
http://www.amazon.co.uk/Wall-Street-Revalued-Imperfect-Markets/dp/0470750057

Cliff

CunningCliff 30 Dec 2011 , 12:55pm

There's more from Smithers on this topic (GDP growth versus market returns) here:

http://ftalphaville.ft.com/blog/2010/02/11/147091/does-rapid-growth-lead-to-high-returns/

Cliff

popsranola 30 Dec 2011 , 4:14pm

British still be the best in Europe to Invest.........

BarrenFluffit 30 Dec 2011 , 4:50pm

Only if you know the future!

Interesting links, thanks.

MAACPRIME 30 Dec 2011 , 9:12pm

I'd really like more Fool coverage of international shares, particularly continental European ones. Too many columns offer the same recommendations (Tesco, Glaxo, BP, Astra, Diageo, Next, BAT, National Grid) etc. while only one piece in the recent past focused on Vivendi (9% dividend, P\E of 6) and no one seems to be looking at the prospects of Eni, UniCredit, ING etc.

Anyway, good piece. I had no idea the DAX had a market cap that was half the FTSE's. Food for thought.

jaizan 31 Dec 2011 , 6:56am

All I need is a broker that offers dealing in all these exchanges without taking me for 2% on the foreign exchange conversion.
Buy £5000 worth of stock, pay £15 trading fee & lose £100 on the currency conversion. Lose another £200 if selling and converting back to Sterling.
That's TD Direct.

I think Halifax now charge 1%, but have a much more limited range of markets.

jaizan 31 Dec 2011 , 6:57am

Sorry, lose £200 total (£100 buying, £100 selling)

goodlifer 31 Dec 2011 , 1:34pm

If a flea's reasonably happy living on a rat why move onto an elephant?

LiverpoolDelta 31 Dec 2011 , 8:19pm

Poor article - gives no advise on best/safest places to invest in these markets.

JeremyBosk 31 Dec 2011 , 10:50pm

Selftrade has the same charges for UK and overseas. USA, Canada, Netherlands, Belgium, France, Spain. Portugal, Italy, Switzerland and Germany. £12.50 a deal.
http://www.selftrade.co.uk/market-data/international-shares/selector.php

jaizan 01 Jan 2012 , 5:14am

Selftrade apply a typical forex spread of 1.25%, so buying £5000 worth of shares means a £12.50 fee and £62.50 worth of forex charges.

The headline fee is not the largest part of the dealing cost. Beware!

Better than TDDirect, but Halifax were applying a spread of just 0.4% until they got greedy in 2011 & increased it to 1% (I believe).

Wuffle 01 Jan 2012 , 4:25pm

Interesting stuff. It's helpful to see this sort of information to understand the global forces that influence investment prices.
As a follow up article, a piece about the relative size of the global bond markets (against equity) would be nice.
There does seem to be a editorial blind spot with regard to bonds. I know they don't make for a riveting story, being all numbers, but its helpful for equity investors to at least grasp the size of the market.

e.g. Q. Why haven't my shares gone up this year?
A. Because bonds have. And they matter.

Thanks for trawling this stuff up.

Wuffle.

Luniversal 02 Jan 2012 , 12:26pm

"Another shock was the weakness of Continental capitalism, with Spain relegated to 13th place and Italy a long way off the pace in 25th place."

But as you yourself point out in recc'ing Smithers, there really is no fixed link between economic success and 'the activities of a casino', as the great man put it 80 years ago. Germany and France aren't hanging heads in shame because Frankfurt and Paris are titchy compared with London or Noo Yawk.

Frenetic secondary trading in equity and its derivatives is not necessarily the most efficient way of allotting primary capital for the basic human needs that free enterprise (to the extent that it really is free, anywhere) can generally supply more efficiently than statist planning.

For most of the 19C-- during which Britain attained a dominance in agriculture, industry, the military, diplomacy and ownership of colonies which has no historical parallel-- most businesses except railways were unquoted. The main activity of the LSE was trading bonds, mosly sovereigns. Speculation in company stock was seen as a disease which we had learnt to avoid after the South Sea Bubble.

The era of cyclical bull and bear markets, regular panics or bubbles in shares and the kneejerk assumption that every big company must be floated has accompanied the decline and fall of the UK from the late 19C onward. 'Invisible earnings' have been elevated at the expense of productive industry-- the dark side of the City's vaunted success story.

The delusion that a roiling stockmarket is a mark of the health of capitalism, rather than its decadence, is largely confined to the English-speaking world. It has certainly taken a knock since 2007.

goodlifer 02 Jan 2012 , 12:58pm

Luniversal

"For most of the 19C... most businesses except railways were unquoted. The main activity of the LSE was trading bonds, mostly sovereigns."

Quite so
But we're not on the gold standard any more.
In those days of more or less zero inflation investors stuck to the likes of gilts and consols, leaving the market to speculators and riverboat gamblers.

Things are very different now we've got fiat money and dear old inflation..

ANuvver 02 Jan 2012 , 4:22pm

It is very possible that US equities are about to undergo a cultural change from yee-haw capital bagging to lil ol' lady income generation. The problem for a UK investor is that you want to minimise the number of hits you take on brokers' FX spreads. Preferably one hit only.

As a member of the W8BEN club, I'm looking to play US dividend payers as a growth strategy. The FX spread is a handy negative incentive to compound USD-denominated dividends into US companies.

Since USD and GBP are in a raggedy race to the bottom anyway, I figure there'll be the occasional relatively advantageous chance to pull proceeds back into sterling from time to time, should I need to do so.

Since the world and his womble have been making predictions recently, here's my humble contribution:
Apple will start dividends/buybacks some time this year. Probably as a double-whammy with the launch of the iTV...
[I don't own AAPL - yet]

moniker46 03 Jan 2012 , 1:21pm

Interactive Brokers will allow you to trade on most markets around the world, and their commission charges are quite low (on par with non-UK brokers). Only caveat is they don't do ISA's, although they do SIPP's.

jaizan 03 Jan 2012 , 6:15pm

I'm interested.

1 What's the Interactive Brokers spread on forex for share trades?

2 Can anyone recommend this service?

misi4sty 13 Mar 2013 , 1:36pm

Since USD and GBP are in a raggedy race to the bottom anyway, I figure there'll be the occasional relatively advantageous chance to pull proceeds back into sterling from time to time, should I e-papierosy need to do so.

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