Why Europe is ‘outcapping’ the US
Imitation is the sincerest form of flattery. That proverb provides the best explanation for the news that the total market capitalisation of stocks on European exchanges now exceeds that of the US markets, says breakingviews in the Wall Street Journal. True, the Thomson Datastream indexes, which Absolute Strategy Research used to make the point, favour Europe, with indexes that include the full market capitalisation for thinly traded stocks - much more prevalent in Europe.
Whatever the measure, the trend clearly favours Europe. Six years ago, the capitalisation of purely western European markets was 63 per cent as large as the US market, according to Datastream. Now, it is 92 per cent. In the 1970s, the ratio hovered in the 30-40 per cent range.
By economic rights, Europe — with far more people and a larger combined GDP - should collectively have had a bigger stock market than the US for years. Europe outdoes the US in manufacturing and exports, sectors in which businesses tend to end up pursuing stock-market listings. And the sustained US trade deficit is giving foreigners trillions of dollars that can be used to buy American companies, depriving the US stock market of listings.
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