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Thursday, April 5. 2007

Europe Tops US in Stock Market Value

Posted by Joerg Wolf in International Economics on Thursday, April 5. 2007

MSNBC publishes a Financial Times article:
Europe has eclipsed the US in stock market value for the first time since the first world war in another sign of the slipping of the global dominance of American capital markets. Europe's 24 stockmarkets, including Russia and emerging Europe, saw their capitalisation rise to $15,720bn (€11,819bn) at the end of last week, according to Thomson Financial data. That exceeded the $15,640bn market value of the US. (...)
The shift mirrors a trend in the debt world, where European activity has caught up, and in some cases overtaken the US.European shares have outperformed the US, with their market capitalisation rising 160 per cent since the start of 2003 in dollar terms, said Thomson Financial. That compared with a 70.5 per cent rise for the US stock market. Over that time the euro has risen 26 per cent against the dollar.
The Independent calls the shift "a historic occasion," but also describes the criticism of the comparison between the European continent and the United States:
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. The first reaction of many on Wall Street yesterday was to dismiss the figures as a distortion or an irrelevance. Russia shouldn't be included as part of Europe, some said. Others asked, what is the point of a comparison with a geographical area that covers two and a half times as many people as the US? And still more said that FTSE and MSCI figures better reflected the size of the equity market available to investors, where the US still wins by anything from 15 per cent to a third. Fair points all, but none diminish the significance of the underlying trend identified in the Thomson figures.
The Independent also points out:
Now that the news is out there, it has immediately been pitched into the argument over whether New York is in danger of losing its position as the financial capital of the world. For London, it is another piece of evidence to back the Stock Exchange's boasts that it is attracting foreign companies that would previously have looked to list in the US. And for some Wall Streeters, it adds new urgency to their calls for looser regulation and other measures to win back lost business.
Usually there are calls for looser regulation in Europe rather than in Wall Street... (Thanks to Zyme for pointing out this story.)
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Zyme - #1 - 2007-04-05 01:19 - (Reply)

Damn it I was too stupid to find articles in english about it - I so hate the google feature that prefers national articles despite the fact you chose the option "Das Web" instead of "Auf Deutsch".

While I think Russia should be included as a european power, I doubt the same for Turkey. Maybe they are better concluded as "the old world" than was Europe :)

Too bad that national feelings have prevented the merging of Frankfurt and London as financial centers. Well nobody would probably give away anything that important of his own sovereignty.

Btw: Could it be that US wages have increased more than European ones while in Europe the companies have gained more of the profit?

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David - #2 - 2007-04-05 02:15 - (Reply)

Well, there is another (related) trend at play here: the increasing power of hedge funds and private equity, dominated by US power investors. More and more large groups are turning their backs on Nasdaq and the NYSE due to excessive regulation,reporting requirements and the obsessive focus on quarterly earnings: they are going private. Meanwhile many start-ups in the US are finding a friendlier welcome on the AIM exchange in London or in Hong Kong.

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Don S - #3 - 2007-04-05 15:43 - (Reply)

Yawn....

You take 24 markets from points vaguely European after a historical run-up in European share prices - then decide that barely beating the US total is somehow significant?

Reminds me of 1990, when we learned that not only did the value of the Japanese stock market exceed the value of US markets at the time, btu the value of the land of the Japanese Islands exceeded the value of the entire US at that time.

How significant a moment that was - the moment when Japan passed the US - forever. Or was it significant at all?

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Zyme - #4 - 2007-04-05 18:15 - (Reply)

Correct me if Iīm wrong Don, but wasnīt the explosive growth of Japanese land value and stock market development the result of a hype that was in no way covered by the revenues of the companies at that time?

In Europe today, analysts always remain calm at every minor blow at the stock market because the revenues of the companies have kept climbing a good deal faster than the shares have at the stock market for several years now.

So the fundaments of these two constellations are in no way comparable.

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Pat Patterson - #5 - 2007-04-05 22:26 - (Reply)

This really is much ado about nothing considering that the growth of the European market is mainly the result of the expansion of the number of markets counted in the aggregate. Much like Starbucks growth via the increase in the number of outlets not sales per store. Even Starbucks has now admitted that without the new outlets sales per store actually declined.

Now if the European market can increse at the same rate without the addition of new countries then that will be truly impressive. How many markets are in the NAFTA area which would create the question of how big is that "American" market compared to the EU or just the US market?

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Markus - #6 - 2007-04-05 23:54 - (Reply)

Your focus on the merits of the comparison misses the main point: The European stock market value was bigger than the US stock market value before the first world war, the begin of a totally destructive century for Europe.

Now the US does not lead anymore. This does not mean that Europe is more powerful. It just means that US dominance is not what it used to be for the last 100 years.

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Don S - #6.1 - 2007-04-10 12:35 - (Reply)

The US doesn't lead any more, Markus? As I pointed out this has happened already in 1990 when the Nikkei passed the US stock market indices, albeit briefly. And that case was a legitimate single-nation market as opposed to a group of 24 national shares markets all added together to prove something.

Although I'm not sure what it shows. Perhaps that 'Europe' (including Russia and Turkey) have a larger economic output than the US? Possible - it is certainly no surprise that 500 million people can outproduce 300 million, is it? Or was it 750 million? Perhaps the amazing thing is that the 300 million has managed to outdo the 500 million (or 750 million) for so long, and still virtually equal them.

But if 'Europe' stretches to the Pacific Ocean - as it would seem in this case, then why not add in China and Japan? They call it 'Eurasia' for a reason, don't they? It only makes the point stronger, doesn't it?

What I think I'd find more interesting would be if the German or French or British shares markets exceeded the US market on a per-capita basis. But that hasn't happened, has it?

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Zyme - #7 - 2007-04-06 00:02 - (Reply)

Yeah in a way we have finally overcome the drawbacks in two world wars. Amazing it took that long, isnīt it?

I guess the statesmen in Europe of the early 20th century would be pleased with such a development :)

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Don S - #8 - 2007-04-10 19:41 - (Reply)

Stories like this one also put me in mind of this: http://en.wikipedia.org/wiki/We_will_bury_you

Ahem. No doubt. The Chinese will get there before you do, however!

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