We can see that the ratio varies dramatically across different countries.
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The current ratio of market cap over GDP in this page gives you an idea on where the market stands from historical perspective. We may not come to an accurate projection for future returns, especially for emerging markets.
But we believe that this page can give us a good idea on where we stand for different countries in terms of historical market valuations. This page presents the market valuation of the 18 largest economies in the world. The market valuation is measured by the ratio of total market cap to GDP. These are the GDPs in U. They are converted into the U. As listed, the U.
The market cap of the U. However, the market caps of other countries do not display as monotone a decline as the GDP, as shown in the chart below: As the results, the ratio of the total market cap over GDP for the countries from the largest economy to the smallest is shown below:.
Putting your mouse over the columns of the chart you will find the exact current total market cap over GDP ratios for each country. We can see that the ratio varies dramatically across different countries. Historically these ratios swing wildly. The chart below is the current ratio of total market cap over GDP and its historical range.
It is also listed in the table at the left side of the chart. The data is updated daily. As we discussed above, the total returns of the future market come from three factors: GDP growth, dividend yield and change of overall market valuation. Assuming the market valuation will revert to the historical mean, the contributions from each component are listed in the table. The countries are separated into developed market and emerging market. Only the countries that have at least 10 years of data are displayed.
These are the past GDP growth rate of these countries. Apparently developing countries had much faster growth than developed countries. This may over-estimate the future returns of the emerging market. The average of the dividend payment of the country ETFs over the last five years was used to estimate the dividend yield.
Yield is calculated by dividing the dividend by the current prices of the corresponding ETFs. Assuming the market valuation will reverse to the mean over the next 8 years, these are the contribution from mean reversion of the market valuation.
Again, these are the total returns from all the three components for these countries: But on the other hand, the economic growth of these countries cannot continue at these rates forever. They may slow down drastically in the future. Considering these factors and the shorter history of data, we believe that the implied returns for the emerging market carry much higher uncertainty.