So Europe’s stock markets have passed those of the U.S. in value, at least if you count Russia and Turkey as part of Europe (which they both partly are). This apparently happened last week, but nobody seems to have noticed until Tuesday after an analyst in London named Ian Harnett pointed it out. There are some caveats, noted the Independent:
For the record, the figures come from Thomson Datastream, not the traditional calculators of indices, such as FTSE or MSCI. These others strip out government holdings and other shares that are not generally available to investors, which lowers the value of European markets, which include many partly privatised companies and the like.
Still, a landmark. Europe has more than twice as many inhabitants and a significantly larger economy than the U.S., so it shouldn’t be all that amazing that the companies traded on its markets are worth more. But it hasn’t been the case since the end of World War II, or maybe even World War I.
So what is one to think of this? I’m of the school that sees it as good news when countries around the world emerge from poverty and communism and other forms of misgovernment. And when that happens, the U.S. share of the global economy inevitably shrinks. We currently account for less than 5% of the world’s population and about 28% global GDP–meaning that the economic share has got a lot more room to decline.
This sort of relative decline can be a hard thing for a proud nation to put up with. And I’m all for doing whatever we can to make the U.S. as economically competitive as possible. But in the end, what ought to matter most is the living standard of U.S. residents, not the size of our economy or our stock markets.
Update: John Authers had this in his “Short View” column in the FT way back on Monday. Missed that. He also shared this interesting factoid:
For decades, through boom and bust, US companies were more focused on shareholder value, and delivered far higher returns on equity than their European counterparts. Restructuring has turned that round. According to Absolute Strategy Research, European companies managed a return on equity last month of 17.5 per cent, compared to 16.5 per cent for the US.