The World in 2050 — GDP & Stock Market Capitalization

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Thesaints
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by Thesaints » Tue Apr 17, 2018 4:52 pm

What a similar forecast made in 1986 would have looked like ?

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willthrill81
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by willthrill81 » Tue Apr 17, 2018 5:25 pm

Thesaints wrote:
Tue Apr 17, 2018 4:52 pm
What a similar forecast made in 1986 would have looked like ?
According to Back to the Future 2, I should have been riding my hoverboard to get to work for at least the last couple of years.

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“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Cochese
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by Cochese » Tue Apr 17, 2018 6:46 pm

Those kicks are still fresh.

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just frank
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by just frank » Tue Apr 24, 2018 4:54 am

The Jetsons were a 1966 prediction of 2066. We are halfway there plus a couple years.

Robots and AI are big business.

Flying cars went into service in Dubai in 2017.

Personal trips (by billionaires) into space have commenced...there is a private crewed mission to circle the moon on the Falcon Heavy manifest.

George and Jane's condo way up in the air exists to avoid global warming and seawater inundation down below. :D

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cfs
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by cfs » Tue Apr 24, 2018 5:33 am

Simple solution to a complex projection, go all IN with the Vanguard Total World Stock VT letting Vanguard to adjust the index as needed and forget about all the global guessing. Good luck y gracias por leer / cfs
~ Member of the Active Retired Force, portfolio withdrawal and spending rate 1.7% ~

MnD
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by MnD » Tue Apr 24, 2018 7:43 am

IlliniDave wrote:
Tue Apr 17, 2018 6:10 am
My first thought is 2050 is pretty much at the tail end of any horizon I might be interested in personally.

I've never been swayed by arguments for the necessity or even advisably of a total market cap approach (but only for some select assets). When it comes to equities I'm somewhere in the ballpark of 30% ex-US and I'll probably just stick with that. I don't have a rationale for that other than I don't see it as particularly likely that there's much to gain placing a higher bet on non-US companies.
By not taking a total market cap approach and instead maintaining a large fixed allocation to a single country, you are currently betting and speculating. Also the idea that 2050 might be check-out time personally thereby justifying inaction might need review. Made in China 2025 calls for domestic dominance and international competitiveness by China by 2025 in 1) New advanced information technology; 2) Automated machine tools & robotics; 3) Aerospace and aeronautical equipment; 4) Maritime equipment and high-tech shipping; 5) Modern rail transport equipment; 6) New-energy vehicles and equipment; 7) Power equipment; 8) Agricultural equipment; 9) New materials; and 10) Biopharma and advanced medical products.

We shall see, but the idea that the US has safe harbor in global leadership for decades seems increasingly speculative.

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tadamsmar
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by tadamsmar » Tue Apr 24, 2018 8:01 am

I wonder how many US investors will still advocate a 100% domestic allocation when the global cap is only 18%?

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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by MnD » Tue Apr 24, 2018 8:50 am

tadamsmar wrote:
Tue Apr 24, 2018 8:01 am
I wonder how many US investors will still advocate a 100% domestic allocation when the global cap is only 18%?
$30 trillion in wealth is turning over from baby-boomers to millenials. An entrenched US-centric investor is unlikely to change their spots but rather the changes will happen when those funds are redeployed after check-out time for the boomers. Just like when (for example) many WWII generation portfolios of individual blue-chip dividend stocks and muni bonds were moved into S&P 500 stock and bond index funds by the boomers.

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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by IlliniDave » Tue Apr 24, 2018 8:54 am

MnD wrote:
Tue Apr 24, 2018 7:43 am
IlliniDave wrote:
Tue Apr 17, 2018 6:10 am
My first thought is 2050 is pretty much at the tail end of any horizon I might be interested in personally.

I've never been swayed by arguments for the necessity or even advisably of a total market cap approach (but only for some select assets). When it comes to equities I'm somewhere in the ballpark of 30% ex-US and I'll probably just stick with that. I don't have a rationale for that other than I don't see it as particularly likely that there's much to gain placing a higher bet on non-US companies.
By not taking a total market cap approach and instead maintaining a large fixed allocation to a single country, you are currently betting and speculating. Also the idea that 2050 might be check-out time personally thereby justifying inaction might need review. Made in China 2025 calls for domestic dominance and international competitiveness by China by 2025 in 1) New advanced information technology; 2) Automated machine tools & robotics; 3) Aerospace and aeronautical equipment; 4) Maritime equipment and high-tech shipping; 5) Modern rail transport equipment; 6) New-energy vehicles and equipment; 7) Power equipment; 8) Agricultural equipment; 9) New materials; and 10) Biopharma and advanced medical products.

We shall see, but the idea that the US has safe harbor in global leadership for decades seems increasingly speculative.
Yep, I'm betting and speculating. Everyone who invests in equity is doing that in a sense, no matter how it's arranged. Market cap weighting is great for efficiency within a given fund, but I've not seen a compelling case it is inherently superior as a portfolio constraint compared to other portfolio construction strategies. I'm sure it is a perfectly good strategy for many people, but I think mine is as well for my goals and horizon.
Don't do something. Just stand there!

msk
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by msk » Tue Apr 24, 2018 9:08 am

Thanks for a great discussion! My actionable point from this is to steer away from the current popular ETFs that split Developed/Emerging to a single ETF that is all inclusive. Why? because of so-called share "dilution". I would prefer a term like "new-share-births". I have similar feelings about preferring to call market volatility rather than use market "risk". We have no clue where or when the new-share-births will take place (or an EM country stealthily becoming a Developed Market), and all these new ones will always look excessively risky early on, just like all the Internet stocks have crept up on us. Those who owned the SP500 for the past 4 decades have benefited more by auto-purchasing the new-share-births than the conservative plodders who continued with investing in market segments, be they automotive, raw materials, etc. Henceforth, following the above discussion, I am very tempted to instruct all my kids to go for VT (Vanguard Total World) or similar, rather than free float market weight US/Developed/EM intricacies.

Just a comment on the new-share-births: I have witnessed a micro cap stock market all the way from its birth over the past 40 years (presumably typical of Emerging Markets). The major reason why privately owned companies go public is to get money from suckers (like us), selling their family owned businesses at what the owners themselves see as excessively high valuations (think of all those internet flotations). A very few pan out, many flounder. As more of the public gets sucked into stock market frenzy, governments get anxious and they enact stronger regulations. IMHO strong regulations will come also to the EM as each of these countries experiences massive new-share-births. I have also witnessed a micro cap grow from nothingness in the 1990s in a tiny country to a listing on the NASDAQ, from family ownership to public in the USA. There is a good reason why the Ali Baba s are keen to to list on the world's most developed market (the US); because that's where they have hope to get excessive valuations. How many BHs would buy BABA if it were listed exclusively in China?! But most BHs already own it via their US ETFs! Henceforth VT looks great for the loooong term. I'll quit splitting my ETFs into US/Developed/EM otherwise I'll have to be awake as any EM pops over to Developed.

protagonist
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by protagonist » Tue Apr 24, 2018 10:41 am

SimpleGift wrote:
Sun Apr 15, 2018 12:54 pm
It is far better to foresee,
even without certainty,
than not to foresee at all.
~ Henri Poincare, French scientist (1854-1912)

We spend a great deal of time on the Forum looking backwards, analyzing the history of asset returns and financial data, so a couple of posts may be in order that glance toward the future. Some will hastily object, "nobody knows nothing!" and hopefully will move on. But this post makes the case that there's at least a few broad trends worth considering about the next 30 years — not with certainty — but in hazy outline, like an impressionist landscape painting.

World GDP from 2018 to 2050 — A Bit Speculative
The first pillar of economic growth is the rate of population growth, which is fairly predictable in its future course (barring a global pandemic) and where we have solid trend data for each country. The second pillar is real GDP growth per-capita (closely related to labor productivity growth) for which we can make reasonable future estimates based on current experience.

Adding these two pillars together gives us a crude GDP growth rate to 2050 for each major economy, which is applied to today's GDP values (chart below). These projected real growth rates vary from 4%-5% for the fast-growing economies of India and Indonesia, to 3% for China and Mexico, to 1-2% for the mature economies of Japan, Europe and the U.S. (from OECD).
  • Image
    NOTE: Values are real (inflation-adjusted), in USD, at 2010 purchasing power parity — and in billions.
    Source: Latest OECD forecasts.
At these conservative growth rates, by 2050 China will easily be the largest global economy, with India, Indonesia, Mexico and Brazil moving up in the GDP rankings — and today's emerging economies accounting for over 60% of world output.

World Market Cap from 2018 to 2050 — Very Speculative!
We also know from history that, with few exceptions, a country's stock returns usually grow faster than its economy, assuming reinvested dividends. This relationship is not constant and there's been a wide variation between countries, due to share dilution, financial crises, and destructive conflicts. But for the world as whole, over the 114 years from 1900 to 2013, the real rate of GDP growth was 2.8%, while the real total return on equities was 4.5% (from Dimson, Marsh & Staunton).

Using a regression analysis of historical equity markets against GDP — and going far out on a limb — the economist Jeremy Siegel (in his Stocks for the Long Run, 4th ed.) makes a projection of the world's stock market capitalization in 2050 (at right below). His model forecasts that China, India and today's other emerging markets will make up 65% of global market cap in 2050, with the developed market's share shrinking to 35% — though, admittedly, it's hard to take these numbers too seriously.
  • Image
    Sources: 2018 market cap from MSCI; 2050 market cap forecast from Siegel.
A Closing Caution
To be clear, this is not an encouragement to load up on emerging market equity! Rapid economic growth rates do not necessarily translate into high returns for index shareholders, mainly due to share dilution. In Mr. Siegel's words:
Jeremy Siegel wrote:Investors should be warned that the increase in a country’s share of world capitalization…does not necessarily represent capital appreciation of existing shares. Rather, most of the increases come from the flotation of new capital…
His point is that in rapidly growing economies, companies are constantly raising capital by issuing new shares and spinning off new enterprises — none of which directly benefits existing shareholders. In fact, less than half of the total stock capitalization in emerging markets today is free-float and included in the major indexes, with the majority of shares owned by closely-held private groups, other linked companies and government entities.

In short, we can have confidence in future GDP growth, but just not which companies and shareholders will best profit from it.

Your thoughts?
Do you remember, in the 1980s, the pervasive idea that Japan was going to take over the Earth's economy?

In 1986, Gore Vidal wrote that in the face of Japan's climb to economic dominance, "There is only one way out. The time has come for the United States to make common cause with the Soviet Union." His advice on the Soviets was provocative, but the idea that Japan owned the future was nearly ubiquitous.

In 1991, former MIT dean Lester Thurow, wrote that, "If one looks at the last 20 years, Japan would have to be considered the betting favorite to win the economy honors of owning the 21st century."

In 1988, former Reagan official Clyde Prestowitz said, "The American century is over. The big development in the latter part of the century is the emergence of Japan as a major superpower."

In his book Trading Places, Prestowitz elaborated: "The power behind the Japanese juggernaut is much greater than most Americans suspect, and the juggernaut cannot stop of its own volition, for Japan has created a kind of automatic wealth machine, perhaps the first since King Midas.

MY PREDICTION: In 2050, people will be laughing their heads off over predictions like these made in 2018. Perhaps even over this one of mine. I'm sure I will be alive then, and on my 98th birthday they will be laughing at me.

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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by MnD » Tue Apr 24, 2018 1:14 pm

IlliniDave wrote:
Tue Apr 24, 2018 8:54 am
Yep, I'm betting and speculating. Everyone who invests in equity is doing that in a sense, no matter how it's arranged. Market cap weighting is great for efficiency within a given fund, but I've not seen a compelling case it is inherently superior as a portfolio constraint compared to other portfolio construction strategies. I'm sure it is a perfectly good strategy for many people, but I think mine is as well for my goals and horizon.
I disagree that a passive global market cap equity investor is "betting and speculating" in the same sense that a US-only or US tilt with a fixed allocation investor is. The former is buying the haystack and taking whatever returns and country allocations the equity market delivers. The latter is betting and speculating on equity returns from companies headquartered in a single country.

A US-only or heavily tilted US investor is on par with someone going 100% or heavily so in Chinese equity as far as betting and speculation.

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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by IlliniDave » Tue Apr 24, 2018 3:26 pm

MnD wrote:
Tue Apr 24, 2018 1:14 pm
IlliniDave wrote:
Tue Apr 24, 2018 8:54 am
Yep, I'm betting and speculating. Everyone who invests in equity is doing that in a sense, no matter how it's arranged. Market cap weighting is great for efficiency within a given fund, but I've not seen a compelling case it is inherently superior as a portfolio constraint compared to other portfolio construction strategies. I'm sure it is a perfectly good strategy for many people, but I think mine is as well for my goals and horizon.
I disagree that a passive global market cap equity investor is "betting and speculating" in the same sense that a US-only or US tilt with a fixed allocation investor is. The former is buying the haystack and taking whatever returns and country allocations the equity market delivers. The latter is betting and speculating on equity returns from companies headquartered in a single country.

A US-only or heavily tilted US investor is on par with someone going 100% or heavily so in Chinese equity as far as betting and speculation.
Investors choose to buy stocks, versus other things they could do with their money, most likely holding stocks in a disproportionately high concentration compared to other assets when measured by market weight, because they believe (speculate) the stocks are the best way to meet their financial goals.

I'm 70/30 us/ex-us compared to a market weight of what: 55/45? I don't think that's comparable to going 100% in to an undeveloped market, but to each her/his own. I already admitted I speculate insofar as I weight both assets in my portfolio (e.g., stocks vs bonds) and sometimes sub-classes within those asset classes at other than "market weight".
Don't do something. Just stand there!

golfCaddy
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by golfCaddy » Tue Apr 24, 2018 6:32 pm

Does the MSCI index include a-shares at market weight? If not, China is under-weighted in 2018 market cap because of the index construction.

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AtlasShrugged?
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by AtlasShrugged? » Wed Apr 25, 2018 6:41 am

SimpleGift....The takeaway I get from your post. Invest we must.....in international index funds! :happy

Those numbers for China and India are astounding. That is a tremendous amount of growth in just 32 years. It may actually be understated. Why?

The one thing I am not sure we take into account very well: The velocity and pace of technological progress is accelerating, and it is dramatic.

Take CRISPR, for instance. Genetic editing combined with nanotechnology will make our grandchildren immortal, in all likelihood. Think of it....immortal. I think my generation, Gen X, is just going to miss out. This is just ONE example. Layer AI over that and who knows what we will get. But what I do know is that there will be an outsized impact....to our species.

What I think I can do: Continue to invest in the total US stock market, and total international market....and hope like heck that the companies and entities that make these breakthroughs are public companies that trade on a stock market. Because the valuations of companies that make these breakthroughs will be something like have never seen before.
“If you don't know, the thing to do is not to get scared, but to learn.”

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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by Valuethinker » Thu Apr 26, 2018 5:55 am

MnD wrote:
Tue Apr 24, 2018 1:14 pm
IlliniDave wrote:
Tue Apr 24, 2018 8:54 am
Yep, I'm betting and speculating. Everyone who invests in equity is doing that in a sense, no matter how it's arranged. Market cap weighting is great for efficiency within a given fund, but I've not seen a compelling case it is inherently superior as a portfolio constraint compared to other portfolio construction strategies. I'm sure it is a perfectly good strategy for many people, but I think mine is as well for my goals and horizon.
I disagree that a passive global market cap equity investor is "betting and speculating" in the same sense that a US-only or US tilt with a fixed allocation investor is. The former is buying the haystack and taking whatever returns and country allocations the equity market delivers. The latter is betting and speculating on equity returns from companies headquartered in a single country.
That happen to be US listed, and this gets very arbitrary. You get UK listed companies (Diageo, British American Tobacco, Glaxo Smithkline, BP, etc.) that have much larger operations in USA than in UK, and may even be majority US activity companies. Yet they are top 10 in the FTSE100.

Why would you want to own (as an index investor) P&G but not Nestle and Unilever? Exxon but not BP & Shell & Total? GE but not Siemens.
A US-only or heavily tilted US investor is on par with someone going 100% or heavily so in Chinese equity as far as betting and speculation.
That's reasoning by false analogy.

Being 100% in a market that is c. 55% of world markets is not the same as being 100% in something that is less than 5% of world markets.

Just being in the USA is a bet for USA against international. The degree of correlation between US markets and international developed markets is high, so the loss of diversification benefit is relatively smaller.

protagonist
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by protagonist » Thu Apr 26, 2018 8:45 am

Check out this lost classic. "Journey to the seventh planet" (1962). http://www.dailymotion.com/video/x29t9kj

"The year is 2001. Man has learned to live with himself. The planet is no longer racked by wars and threats of annihilation."

Good choice of year. 2001.

I am reminded of stuff like this when people try making predictions of a world 30-40 years in the future. In real life the noise grows exponentially relative to the signal. Just go back 30-40 years and see how well the "experts" did.

The only thing even vaguely reliable about such predictions is that they sell articles and books. (Not to mention financial models).
Last edited by protagonist on Thu Apr 26, 2018 8:56 am, edited 1 time in total.

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willthrill81
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by willthrill81 » Thu Apr 26, 2018 9:07 am

protagonist wrote:
Thu Apr 26, 2018 8:45 am
Check out this lost classic. "Journey to the seventh planet" (1962). http://www.dailymotion.com/video/x29t9kj

"The year is 2001. Man has learned to live with himself. The planet is no longer racked by wars and threats of annihilation."

Good choice of year. 2001.

I am reminded of stuff like this when people try making predictions of a world 30-40 years in the future. In real life the noise grows exponentially relative to the signal. Just go back 30-40 years and see how well the "experts" did.

The only thing even vaguely reliable about such predictions is that they sell articles and books. (Not to mention financial models).
:thumbsup

If I could be 80% 'correct' about what would happen in each subsequent year, a success ratio that most prognosticators would kill for, then I would only be 11% 'correct' about what would happen ten years from now (i.e. .80^10). Extend that to twenty years, and I could only be correct about 1.1% of the future.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

JoeRetire
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by JoeRetire » Thu Apr 26, 2018 11:21 am

SimpleGift wrote:
Sun Apr 15, 2018 12:54 pm
In short, we can have confidence in future GDP growth, but just not which companies and shareholders will best profit from it.

Your thoughts?
Confident speculation is always fun - particularly about the future!
So when do I get my flying car, anyway?

protagonist
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by protagonist » Thu Apr 26, 2018 11:35 am

JoeRetire wrote:
Thu Apr 26, 2018 11:21 am
SimpleGift wrote:
Sun Apr 15, 2018 12:54 pm
In short, we can have confidence in future GDP growth, but just not which companies and shareholders will best profit from it.

Your thoughts?
Confident speculation is always fun - particularly about the future!
So when do I get my flying car, anyway?
You don't have yours yet?

In 1964, Isaac Asimov predicted that in 2014, this would happen:

Jets of compressed air will also lift land vehicles off the highways, which, among other things, will minimize paving problems. Smooth earth or level lawns will do as well as pavements. Bridges will also be of less importance, since cars will be capable of crossing water on their jets, though local ordinances will discourage the practice.

WanderingDoc
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by WanderingDoc » Fri Apr 27, 2018 12:22 am

Great thread.

This has persuaded me to trade my entire Roth IRA (currently held in Target 2055 Fund) into VT or its equivalent. Thanks everyone!
I'm not looking to get rich quick (crypto), I'm not looking to get rich slow (index funds).. I'm looking to get rich, for sure (real estate).

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