The World in 2050 — GDP & Stock Market Capitalization

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SimpleGift
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The World in 2050 — GDP & Stock Market Capitalization

Post by SimpleGift » 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?
Last edited by SimpleGift on Sun Apr 15, 2018 2:55 pm, edited 1 time in total.
Cordially, Todd

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

Post by Ever Ready » Sun Apr 15, 2018 1:53 pm

How did forecasts from 30 years ago turn out?

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

Post by wrongfunds » Sun Apr 15, 2018 2:04 pm

Waiting for definite moderator lock on this topic; we just don't discuss this here without getting politics in to it.

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

Post by GCD » Sun Apr 15, 2018 2:10 pm

SimpleGift wrote:
Sun Apr 15, 2018 12:54 pm
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...

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

Your thoughts?
I'm befuddled. Didn't you just use a bunch of charts and rough data to make a conventional and simple BH argument? In the long run stocks go up, but it is a fool's errand to pick specific companies, so invest in the stock market as broadly as you can with index funds?

You predict people will object, but I don't see anything spectacularly objectionable or novel about what you wrote.

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

Post by jebmke » Sun Apr 15, 2018 2:19 pm

I will be either 97 or dead.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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

Post by bantam222 » Sun Apr 15, 2018 2:25 pm

Thanks for sharing. More data is never a bad thing.

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

Post by aj76er » Sun Apr 15, 2018 2:40 pm

So you assume today's growth rates for emerging markets will persist (on average) for the next 30yrs? I think there are a lot of things that can derail a high growth rate as emerging economies "mature".

Also, I'm not convinced that demographics will correlate so positively to GDP growth rates in the future. This is because I believe increasing automation, machine learning, and artificial intelligence will make an increasingly large number of human workers obsolete. And the jobs in the future that do require humans will need them at a diminished number. 100yrs ago, the largest US companies (e.g. Ford, etc..) employed ~100,000 workers. Today, the largest US companies (e.g. Facebook) employ ~10,000 workers.
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by SimpleGift » Sun Apr 15, 2018 2:42 pm

GCD wrote:
Sun Apr 15, 2018 2:10 pm
I'm befuddled. Didn't you just use a bunch of charts and rough data to make a conventional and simple BH argument? In the long run stocks go up, but it is a fool's errand to pick specific companies, so invest in the stock market as broadly as you can with index funds?

You predict people will object, but I don't see anything spectacularly objectionable or novel about what you wrote.
Right. Faced with uncertainty about the future, the best option is to diversify broadly across many companies around the world, I believe — and then depend upon the growth of the global economy to increase their earnings over time.

This is not a novel argument, but many Forum members object to looking at the future much at all. My view is the OECD growth projections are one of several possible future outcomes — simply a plausible future outcome, with large error bands.
Cordially, Todd

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

Post by whodidntante » Sun Apr 15, 2018 2:45 pm

To make this actionable, there is value in international diversification.

I had a roommate in the 90's when globalization was dripping with promise and China was on a tear. We could talk about anything for hours and it would get passionate but never angry. I made the prediction that China would overtake the size of our own economy before either of us got a gold watch. He said "they are growing quickly but they are so small they will never overtake the USA in our lifetime." For effect, he then said "NEVER!!" followed by a big belly laugh and a drag on his cigarette.

He still might be right, but I don't like his odds. But I was also wrong, since no one gets a gold watch anymore.

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

Post by SimpleGift » Sun Apr 15, 2018 2:50 pm

aj76er wrote:
Sun Apr 15, 2018 2:40 pm
So you assume today's growth rates for emerging markets will persist (on average) for the next 30yrs? I think there are a lot of things that can derail a high growth rate as emerging economies "mature".
No, most of the future GDP growth projections I've seen for emerging markets do not assume a linear growth path (chart below). They expect growth rates to be more rapid earlier on, and then decrease as these economies gradually mature.
The GDP growth rates mentioned in the OP are simply the average growth rates over the full 32-year period to 2050.
Cordially, Todd

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

Post by DetroitRick » Sun Apr 15, 2018 2:58 pm

Interesting stuff, and I really appreciate the post. Whatever the results, the road from here to there (2018 to 2050) will probably involve more technological and political changes that we could ever envision today. But it's not a static world and these projections of big shifts are safe in that respect. And that alone is worthy of our thoughts as investors. Even if it doesn't directly drive our specific strategies. The thing I most wonder about is how energy resources, including those yet-to-be-invented, will shape the ultimate results by mid century.

I like to think about how different the world has evolved from what was projected in the 70's and early 80's. Japan, Mexico, China, USSR/Russia to name a few. But there are still underlying trends that should interest hands-on investors, even if the forecasts are wrong. As your initial quote so nicely summarizes. Demographic shifts, productivity developments, and more.

You bring up a point that I (even in my general enthusiasm for emerging markets) have to constantly remind myself - the majority of their capitalization is not public. My experience alone is not sufficient to be representative, but I seldom dealt with public companies when I built business in some of these markets. As an investor, there is a big slice that I can't easily and directly tap. Fortunately there are a number of first-world global companies that can still leverage these markets for me.

Bottom line, the world is changing. It's always has been changing. Things will be different in 2050, and along the way. Never hurts for investors to keep up with trends, otherwise we might hold onto those buggy-whip companies too long :oops: I don't see anything controversial in your presentation - just the big question: if I believe it, how do I use it?

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

Post by Bud » Sun Apr 15, 2018 4:17 pm

USA GDP Real Growth (inflation adjusted) - DJIA
1930 $ 0.967 trillion - 244.2
1950 $ 2.184 trillion - 200.52
1970 $ 4.722 trillion - 800.20
1990 $ 8.955 trillion - 2810.15
2010 $14.784 trillion - 10428.05
2017 $17.096 trillion - 24719.22

The US market has tracked GDP but very irregularly. The DJIA has increase 100x since 1930 while the real GDP has increased about 17x and nominal GDP has increased 162x from 1930 to 2017 ($0.105 trillion to $17.096 trillion).

The major shift may be caused by which markets are considered 'safe' havens by investors. In 1930, Europe was the center of the developed world and that shifted to the USA following WW2. Will the shift move to SE Asia in the next 30 years? Are China, India, and other developing markets transparent enough to be inviting to investors?

Interesting data - how to make the most of it is the question.


data sources:
https://www.thebalance.com/us-gdp-by-year-3305543
http://www.fedprimerate.com/dow-jones-i ... y-djia.htm

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

Post by SimpleGift » Sun Apr 15, 2018 4:31 pm

Bud wrote:
Sun Apr 15, 2018 4:17 pm
The US market has tracked GDP but very irregularly. The DJIA has increase 100x since 1930 while the real GDP has increased about 17x and nominal GDP has increased 162x from 1930 to 2017 ($0.105 trillion to $17.096 trillion).
Yes, in fact in a PM this afternoon, a Forum member asked for more background on the OP statement that "a country's stock returns usually grow faster than its economy, assuming reinvested dividends."

It came from Dimson, Marsh and Staunton's 2014 Yearbook, in which they plotted real aggregate GDP growth rates (not per-capita) for 21 countries against their real total equity returns for the 1900-2013 period (chart below). But for two exceptions (Austria and Italy), stock market performance handily outpaced GDP growth — assuming all dividends are reinvested.
They also found a substantial correlation between aggregate GDP growth rates (not per-capita growth) and stock market returns for these 21 countries over the 114 years (R^2 = 0.51) — a finding which is often overlooked.

Bud wrote:
Sun Apr 15, 2018 4:17 pm
Interesting data - how to make the most of it is the question.
What else to do but own a small proportional share of all the companies on the planet — and be glad that emerging economies are projected to grow in the 4%-5% range (real), rather than 1%-2% for the aging developed markets. Eventually that growth will filter down to the earnings of companies with sales in emerging countries, either directly or secondarily — companies from Europe, Japan, the U.S., and domestically in the emerging countries themselves.
Cordially, Todd

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

Post by hilink73 » Mon Apr 16, 2018 7:21 am

Ever Ready wrote:
Sun Apr 15, 2018 1:53 pm
How did forecasts from 30 years ago turn out?
I just had a yearbook/chronic from the early/mid 1980s in my hand.
They showed two Lookheed Martin nuclear powered aircraft studies. Prediction was to have them in the air was the year 2000.
So there's that.

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

Post by hilink73 » Mon Apr 16, 2018 7:35 am

SimpleGift wrote:
Sun Apr 15, 2018 12:54 pm


Your thoughts?
Thanks for your post.
As I've mentioned earlier here, I'm weighting equities according to GDP (which is roughly 25% US, 28% EU, 10% JP (as AsiaPacific proxy) and 37% EM.

Also, I certainly do not know where this journey is going, but I have the feeling of needing to take that risk.
From a Swiss/European view and not wanting to extend this into a political discussion, I'm also not sure how long the US will maintain it's dominant role globally. As we say: what goes up, must come down.

Another thought:
In the US there's along tradition of companies going public, so the market cap is naturally very high (globally).
Whereas in other countries, also big companies could be privately owned, e. g. in Germany, so the global market cap is lower in comparison.
(This was mentioned here for EM specifically by other posters.)
Then if investing by global market cap, I would invest in the country with the most public companies (US) but not necessarily in the countries which might have a better potential for growth going forward.

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

Post by Valuethinker » Mon Apr 16, 2018 8:06 am

hilink73 wrote:
Mon Apr 16, 2018 7:21 am
Ever Ready wrote:
Sun Apr 15, 2018 1:53 pm
How did forecasts from 30 years ago turn out?
I just had a yearbook/chronic from the early/mid 1980s in my hand.
They showed two Lookheed Martin nuclear powered aircraft studies. Prediction was to have them in the air was the year 2000.
So there's that.
That's very different, though.

This is a projection of long term averages of GDP growth - that does not involve predicting technology or social trends.

Any given projection about a technology or a particular innovation is more likely to be wrong than right. Very few future prognosticators caught the importance of either the Internet or the mobile phone.

There's event risk in this. If India Pakistan have their faceoff nuclear war, then all bets are off. Similar catastrophes are imaginable for all the countries listed-- individually or collectively.

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

Post by RadAudit » Mon Apr 16, 2018 8:10 am

I'm just hoping that VG keeps updating the total international stock and bond fund portfolios to track the indices. Then, I'll concern my self with the domestic / international allocations of stocks and bonds within my portfolio. I'm sure it will be high on the lists of concerns as I move forward to 100. But, BHers will give this development adequate attention over the next 30 years and maybe sufficient time to make adjustments. Or maybe, just go with a Life Strategy fund.
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Re: The World in 2050 — GDP & Stock Market Capitalization

Post by nisiprius » Mon Apr 16, 2018 8:16 am

In 'Life on the Mississippi,' Mark Twain wrote:In the space of one hundred and seventy-six years the Lower Mississippi has shortened itself two hundred and forty-two miles. That is an average of a trifle over one mile and a third per year. Therefore, any calm person, who is not blind or idiotic, can see that in the Old Oolitic Silurian Period,' just a million years ago next November, the Lower Mississippi River was upwards of one million three hundred thousand miles long, and stuck out over the Gulf of Mexico like a fishing-rod. And by the same token any person can see that seven hundred and forty-two years from now the Lower Mississippi will be only a mile and three-quarters long, and Cairo and New Orleans will have joined their streets together, and be plodding comfortably along under a single mayor and a mutual board of aldermen. There is something fascinating about science. One gets such wholesale returns of conjecture out of such a trifling investment of fact.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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

Post by hilink73 » Mon Apr 16, 2018 10:46 am

Valuethinker wrote:
Mon Apr 16, 2018 8:06 am
hilink73 wrote:
Mon Apr 16, 2018 7:21 am
Ever Ready wrote:
Sun Apr 15, 2018 1:53 pm
How did forecasts from 30 years ago turn out?
I just had a yearbook/chronic from the early/mid 1980s in my hand.
They showed two Lookheed Martin nuclear powered aircraft studies. Prediction was to have them in the air was the year 2000.
So there's that.
That's very different, though.

This is a projection of long term averages of GDP growth - that does not involve predicting technology or social trends.

Any given projection about a technology or a particular innovation is more likely to be wrong than right. Very few future prognosticators caught the importance of either the Internet or the mobile phone.

There's event risk in this. If India Pakistan have their faceoff nuclear war, then all bets are off. Similar catastrophes are imaginable for all the countries listed-- individually or collectively.
Absolutely correct.
This meant to be a joke. Maybe I need more practice ... :shock:

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

Post by MnD » Mon Apr 16, 2018 11:15 am

Looking forward to something like this. As a global market cap investor on the equity side, the current US share of 52% makes me uncomfortable. No the current US isn't a present-day copy of 1988 Japan, but I doubt the US global market cap more than double the GDP share is going to persist.
I'd be surprised to see the US at 18% of Total World Stock in 32 years, but I expect it to be much lower than the current share. But regardless I'll be owning the haystack until check-out time and I already encourage my kids to do the same. I can't imagine over-weighting the US over 52%.
Good article below from The Economist on the out-sized US share of global stock market.
https://www.economist.com/news/finance- ... l-americas

Image

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

Post by SimpleGift » Mon Apr 16, 2018 11:19 am

hilink73 wrote:
Mon Apr 16, 2018 7:35 am
Then if investing by global market cap, I would invest in the country with the most public companies (US) but not necessarily in the countries which might have a better potential for growth going forward.
An underappreciated point. An argument can be made that the global, cap-weighted index itself includes an unconscious bias in favor of the Western developed nations. In many developed countries, the equity markets have historically played a very significant role in providing a source of finance for economic activity — and these countries tend to have higher ratios of market capitalization to GDP (chart below).
Conversely, the market cap-to-GDP ratios are generally much lower for emerging economies, whose domestic companies have historically relied upon other sources of finance such as bank loans and retained earnings. Thus, a significant gap exists between market cap and economic size for many emerging countries — a gap which can be expected to close in the decades ahead as these countries become more "equitized."
Cordially, Todd

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

Post by Valuethinker » Mon Apr 16, 2018 11:26 am

hilink73 wrote:
Mon Apr 16, 2018 10:46 am
Valuethinker wrote:
Mon Apr 16, 2018 8:06 am
hilink73 wrote:
Mon Apr 16, 2018 7:21 am
Ever Ready wrote:
Sun Apr 15, 2018 1:53 pm
How did forecasts from 30 years ago turn out?
I just had a yearbook/chronic from the early/mid 1980s in my hand.
They showed two Lookheed Martin nuclear powered aircraft studies. Prediction was to have them in the air was the year 2000.
So there's that.
That's very different, though.

This is a projection of long term averages of GDP growth - that does not involve predicting technology or social trends.

Any given projection about a technology or a particular innovation is more likely to be wrong than right. Very few future prognosticators caught the importance of either the Internet or the mobile phone.

There's event risk in this. If India Pakistan have their faceoff nuclear war, then all bets are off. Similar catastrophes are imaginable for all the countries listed-- individually or collectively.
Absolutely correct.
This meant to be a joke. Maybe I need more practice ... :shock:
;-)

Irony doesn't always communicate well on the internet :sharebeer

I live among the Brits, and my spouse claims that I am fairly irony-free ;-). Which by their standards, I probably am ;-).

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

Post by Valuethinker » Mon Apr 16, 2018 11:34 am

SimpleGift wrote:
Mon Apr 16, 2018 11:19 am
hilink73 wrote:
Mon Apr 16, 2018 7:35 am
Then if investing by global market cap, I would invest in the country with the most public companies (US) but not necessarily in the countries which might have a better potential for growth going forward.
An underappreciated point. An argument can be made that the global, cap-weighted index itself includes an unconscious bias in favor of the Western developed nations. In many developed countries, the equity markets have historically played a very significant role in providing a source of finance for economic activity — and these countries tend to have higher ratios of market capitalization to GDP (chart below).
Conversely, the market cap-to-GDP ratios are generally much lower for emerging economies, whose domestic companies have historically relied upon other sources of finance such as bank loans and retained earnings. Thus, a significant gap exists between market cap and economic size for many emerging countries — a gap which can be expected to close in the decades ahead as these countries become more "equitized."
I am not sure with France & Germany, Italy that these ratios have converged over time? With Japan it has gone the other way. Not sure re Taiwan, South Korea, Israel? (probably gone the direction of Anglo Saxon markets).

At one time (late 80s) it was argued that the Continental way gave a significant advantage over the Anglo Saxon one. Then the overly cosy relationships between, e.g., German banks and German industrial companies became an issue.

The dimensions of the banking crash, which was largely an Anglo Saxon banking crash (Iceland, Ireland, UK, USA; the subsequent Greek and Italian crises have different roots, although Spain looked pretty Anglo Saxon in its property-debt crash), may shift the perceived best paradigm again. Towards state associated companies or towards family owned enterprises (which have some of the best long term records for investing - think Buffett, or think Tata, IKEA etc.).

It depends in part how the very cosy relationship between the Chinese state and Chinese companies (listed and unlisted) plays out. That's a direct challenge to the laissez-faire Classical Liberal model of Anglo Saxon governance & capitalism (which also emphasises minority shareholder rights). The market valuations of Chinese listed companies are huge so it will be interesting.

In and of itself, Saudi Aramco will move the dial re market cap/ GDP of Emerging Markets, if they get anywhere near that $2 trillion valuation they are hoping for at IPO.

In comparison to the around 2000 "we won the world" triumphalism Anglo Saxon capitalism, and now the democratic model, have taken more than a few hits. It wasn't only the WTC and several thousand people that died on 9-11, we may find.

So I would not be sure that EM are going to follow in our lead even though the balance of probability might make me think so.

EDIT - I should add UK is something of an outlier. Switzerland might be another. We have a lot of multinationals which are HQ'd here. Think Shell, BP, Diageo, Glaxo Smithkline, Astra Zeneca. The UK domestic market & GDP are largely irrelevant to their activities.
Last edited by Valuethinker on Mon Apr 16, 2018 12:10 pm, edited 1 time in total.

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

Post by snarlyjack » Mon Apr 16, 2018 11:56 am


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

Post by garlandwhizzer » Mon Apr 16, 2018 12:41 pm

SimpleGift wrote:
Conversely, the market cap-to-GDP ratios are generally much lower for emerging economies, whose domestic companies have historically relied upon other sources of finance such as bank loans and retained earnings. Thus, a significant gap exists between market cap and economic size for many emerging countries — a gap which can be expected to close in the decades ahead as these countries become more "equitized.
1+

An important and often overlooked point. Nothing about the future is assured, only guesses, but this IMO is a good guess.

Garland Whizzer

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

Post by chevca » Mon Apr 16, 2018 12:53 pm

SimpleGift wrote:
Sun Apr 15, 2018 2:50 pm
aj76er wrote:
Sun Apr 15, 2018 2:40 pm
So you assume today's growth rates for emerging markets will persist (on average) for the next 30yrs? I think there are a lot of things that can derail a high growth rate as emerging economies "mature".
No, most of the future GDP growth projections I've seen for emerging markets do not assume a linear growth path (chart below). They expect growth rates to be more rapid earlier on, and then decrease as these economies gradually mature.
The GDP growth rates mentioned in the OP are simply the average growth rates over the full 32-year period to 2050.
In other words, today"s emerging markets won't be emerging markets in 30 plus years. :happy

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

Post by HomerJ » Mon Apr 16, 2018 1:17 pm

MnD wrote:
Mon Apr 16, 2018 11:15 am
As a global market cap investor on the equity side, the current US share of 52% makes me uncomfortable.
Just curious. What percentage does the U.S. hold if you only count countries with low corruption, no dictatorship, and strong rule of law?

Because those are the countries I want to invest in, not "the world".

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

Post by MnD » Mon Apr 16, 2018 2:39 pm

HomerJ wrote:
Mon Apr 16, 2018 1:17 pm
MnD wrote:
Mon Apr 16, 2018 11:15 am
As a global market cap investor on the equity side, the current US share of 52% makes me uncomfortable.
Just curious. What percentage does the U.S. hold if you only count countries with low corruption, no dictatorship, and strong rule of law?

Because those are the countries I want to invest in, not "the world".
Feel free to do your own binning but I would bin about 90% of the counties by market cap in Vanguard Total World in that box.

As for the other 10%, outsized gains can be had from buying equity in "diamonds in the rough" nations, so its certainly not a concern to hold a relatively small percentage of equity in potential up and comers on social, legal and economic development. Like a lot of things in investing, business and life in general, the outcomes with the big upsides are not generally to be had by playing it safe on "past winners". Just ask investors in Sears, General Motors and lately, GE.
Lastly, while I would include the US in the 90-per-centers, its hardly some exceptional shining city on the hill with regards to corruption, leadership, human development, crime and rule of law. More like a mid-packer among developed nations in rankings of economic freedom and human development.

Country diversification (% of common stock) as of 03/31/2018 Total World Stock ETF
United States 51.7%
Japan 8.5%
United Kingdom 5.8%
China 3.2%
France 3.1%
Canada 3.0%
Germany 3.0%
Switzerland 2.4%
Australia 2.2%
Korea 1.9%
Taiwan 1.6%
Hong Kong 1.2%
India 1.2%
Netherlands 1.1%
Spain 1.0%
Sweden 1.0%
Brazil 0.9%
Italy 0.9%
South Africa 0.8%
Denmark 0.6%
Singapore 0.5%
Belgium 0.4%
Finland 0.4%
Malaysia 0.4%
Mexico 0.4%
Russia 0.4%
Thailand 0.4%
Norway 0.3%
Chile 0.2%
Indonesia 0.2%
Israel 0.2%
Austria 0.1%
Colombia 0.1%
Greece 0.1%
Ireland 0.1%
New Zealand 0.1%
Philippines 0.1%
Poland 0.1%
Portugal 0.1%
Qatar 0.1%
Turkey 0.1%
United Arab Emirates 0.1%
Czech Republic 0.0%
Egypt 0.0%
Hungary 0.0%
Luxembourg 0.0%
Other 0.0%
Pakistan 0.0%
Peru 0.0%

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

Post by willthrill81 » Mon Apr 16, 2018 7:19 pm

nisiprius wrote:
Mon Apr 16, 2018 8:16 am
In 'Life on the Mississippi,' Mark Twain wrote:In the space of one hundred and seventy-six years the Lower Mississippi has shortened itself two hundred and forty-two miles. That is an average of a trifle over one mile and a third per year. Therefore, any calm person, who is not blind or idiotic, can see that in the Old Oolitic Silurian Period,' just a million years ago next November, the Lower Mississippi River was upwards of one million three hundred thousand miles long, and stuck out over the Gulf of Mexico like a fishing-rod. And by the same token any person can see that seven hundred and forty-two years from now the Lower Mississippi will be only a mile and three-quarters long, and Cairo and New Orleans will have joined their streets together, and be plodding comfortably along under a single mayor and a mutual board of aldermen. There is something fascinating about science. One gets such wholesale returns of conjecture out of such a trifling investment of fact.
:thumbsup

What a great book from one of the great writers.

I think that trying to predict what the world's market will look like in 30+ years is, at best, an exercise in futility. I don't think that anyone can predict that any better than anyone can predict what the U.S. stock market will do over the next one, five, or ten years.

When I think of predictions, I remember 2001: A Space Odyssey.
“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

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

Post by Good Listener » Mon Apr 16, 2018 8:11 pm

I would be 98 and dont want to be alive. Seriously, we cannot predict how immigration flows will go, how various things will happen, and whether moon occupancy will be an option. I will choose the moon or Mars if I have a choice.

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

Post by jehovasfitness » Mon Apr 16, 2018 8:38 pm

DC will be underwater in 2050 so basically a swamp as it's called now

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

Post by SimpleGift » Mon Apr 16, 2018 8:48 pm

We don't have to rely on forecasts of the next 30 year to get a sense of the future. We can also look back at the last thirty years and use our common sense about what is coming down the road.

Since 1988, over 1 billion people worldwide have moved out of poverty (chart below). Yes, the vast majority are now in the "low income" category, between poverty and middle class. But unless one believes that economic growth is ending in the emerging world, it's not a mystery where most of the new middle class consumers will be coming from over the next 30 years.
  • Image
    NOTE: Vertical axis shows number people at various income levels; horizontal axis is log scale.
    Source: Adapted from Roser
In order to have earnings, companies need to have sales — and to have sales, companies need to have customers with sufficient income to buy their products. These new middle class consumers will be not coming from aging developed countries.
Cordially, Todd

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

Post by willthrill81 » Mon Apr 16, 2018 8:54 pm

SimpleGift wrote:
Mon Apr 16, 2018 8:48 pm
We don't have to rely on forecasts of the next 30 year to get a sense of the future. We can also look back at the last thirty years and use our common sense about what is coming down the road.

Since 1988, over 1 billion people worldwide have moved out of poverty (chart below). Yes, the vast majority are now in the "low income" category, between poverty and middle class. But unless one believes that economic growth is ending in the emerging world, it's not a mystery where most of the new middle class consumers will be coming from over the next 30 years.
  • Image
    NOTE: Vertical axis shows number people at various income levels; horizontal axis is log scale.
    Source: Adapted from Roser
In order to have earnings, companies need to have sales — and to have sales, companies need to have customers with sufficient income to purchase their products. These new middle class consumers will be not coming from aging developed countries.
Implicit to your argument is that Chinese firms will sell to Chinese customers, Indian firms to Indian customers, etc. I'm not entirely convinced as to how much that will actually happen. It's my understanding that about half of the revenue of the S&P 500 comes from outside the U.S., while at the same time a large portion of the U.S. market is captured by foreign firms. Firms from developed nations might capture the majority of the 'new growth' in these markets or at least enough to substantially change the outlook predicted in the OP.
“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

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

Post by siamond » Mon Apr 16, 2018 9:08 pm

About population, the old association between population and GDP growth seems fatally flawed to me. Imagine a country (say China) with 10 Billion people? Would that go well? I think not. Also, imagine a country leapfrogging everybody else on AI and various forms of automation? Even if this country has a small population, why couldn't its GDP exceed more sizable countries?

Furthermore, I wonder to which extent country boundaries will matter in 2050 to the worldwide economy. Are Apple, Exxon or Uber US companies? Maybe technically for now, but in reality? What about 30 years from now?

Those are some of the reasons for which I am investing with the world, in order to invest with all companies in the world, with little consideration for borders, and little consideration for population. And just praying that we don't collectively mess it up to the point of no repair.

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

Post by SimpleGift » Mon Apr 16, 2018 9:21 pm

willthrill81 wrote:
Mon Apr 16, 2018 8:54 pm
Implicit to your argument is that Chinese firms will sell to Chinese customers, Indian firms to Indian customers, etc. I'm not entirely convinced as to how much that will actually happen....Firms from developed nations might capture the majority of the 'new growth' in these markets or at least enough to substantially change the outlook predicted in the OP.
We don't disagree at all. Who knows what companies around the globe will most profit from the future growth in emerging markets? The only rational approach in the face of this uncertainty, in my view, is for an investor to be exposed to a small proportional share of all of them.
Last edited by SimpleGift on Mon Apr 16, 2018 9:28 pm, edited 1 time in total.
Cordially, Todd

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

Post by willthrill81 » Mon Apr 16, 2018 9:27 pm

SimpleGift wrote:
Mon Apr 16, 2018 9:21 pm
willthrill81 wrote:
Mon Apr 16, 2018 8:54 pm
Implicit to your argument is that Chinese firms will sell to Chinese customers, Indian firms to Indian customers, etc. I'm not entirely convinced as to how much that will actually happen....Firms from developed nations might capture the majority of the 'new growth' in these markets or at least enough to substantially change the outlook predicted in the OP.
We don't disagree at all. Who knows what companies around the globe will most profit from the future growth in emerging markets? The only rational approach in the face of this uncertainty, in my view, is for investors to be exposed to a small proportional share of all of them.
Cool. :beer

"Predictions are very difficult, especially about the future."
-Niels Bohr
“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

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

Post by CurlyDave » Mon Apr 16, 2018 10:04 pm

aj76er wrote:
Sun Apr 15, 2018 2:40 pm
...100yrs ago, the largest US companies (e.g. Ford, etc..) employed ~100,000 workers. Today, the largest US companies (e.g. Facebook) employ ~10,000 workers.
When sorted by number of employees, the largest US employers are Walmart with 2,300,000 and Amazon with 541,900. https://en.wikipedia.org/wiki/List_of_largest_employers . Facebook is an afterthought.

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

Post by hilink73 » Tue Apr 17, 2018 12:13 am

willthrill81 wrote:
Mon Apr 16, 2018 8:54 pm


Implicit to your argument is that Chinese firms will sell to Chinese customers, Indian firms to Indian customers, etc. I'm not entirely convinced as to how much that will actually happen. It's my understanding that about half of the revenue of the S&P 500 comes from outside the U.S., while at the same time a large portion of the U.S. market is captured by foreign firms. Firms from developed nations might capture the majority of the 'new growth' in these markets or at least enough to substantially change the outlook predicted in the OP.
According to viewtopic.php?f=10&t=246780&p=3884849#p3876851, most revenue (75%) of MSCI EM is generated in China and the rest of EM, while only 63% of the revenue of MSCI USA is generated in the US. Only 10% comes from EM.
For Europe, it's very different: only 45% of revenue of MSCI Euope is generated in Europe, but a whopping 20% comes from EM.

Original source (as linked in SimpleGifts post): https://www.hartfordfunds.com/dam/en/do ... 021517.pdf


Maybe this changes in the future, but although we have "globalization" everywhere, a lot of revenue comes from the specific areas where the companies have their homes.

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

Post by just frank » Tue Apr 17, 2018 5:34 am

Ever Ready wrote:
Sun Apr 15, 2018 1:53 pm
How did forecasts from 30 years ago turn out?
The Club of Rome did a number of projections 40 years ago, with different starting assumptions. They had one one assuming a 'High Resources' case---basically no practical limits to fossil fuels and strategic elements. It projected that buildup of a vague 'Pollution' will lead to limitations to growth of then existing tech, starting in the 20-teens.

Sounds about right to me. :beer

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

Post by IlliniDave » 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. If I thought I'd be alive 100 years from now I might think differently, but I might not.
Don't do something. Just stand there!

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

Post by chevca » Tue Apr 17, 2018 8:06 am

Good Listener wrote:
Mon Apr 16, 2018 8:11 pm
I would be 98 and dont want to be alive. Seriously, we cannot predict how immigration flows will go, how various things will happen, and whether moon occupancy will be an option. I will choose the moon or Mars if I have a choice.
Talk about emerging markets, right? Is there a moon and Mars index out there yet? :happy

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

Post by chevca » Tue Apr 17, 2018 8:08 am

CurlyDave wrote:
Mon Apr 16, 2018 10:04 pm
aj76er wrote:
Sun Apr 15, 2018 2:40 pm
...100yrs ago, the largest US companies (e.g. Ford, etc..) employed ~100,000 workers. Today, the largest US companies (e.g. Facebook) employ ~10,000 workers.
When sorted by number of employees, the largest US employers are Walmart with 2,300,000 and Amazon with 541,900. https://en.wikipedia.org/wiki/List_of_largest_employers . Facebook is an afterthought.
Wow, I'd never seen nor known those numbers. Talk about the leader and then everyone else, right?

I dislike Walmart a little less seeing all the jobs they have or have created.

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

Post by columbia » Tue Apr 17, 2018 9:10 am

jebmke wrote:
Sun Apr 15, 2018 2:19 pm
I will be either 97 or dead.
82 or dead, here.

A global equity portfolio is probably best reserved for the 40 (currently) and under crowd, imo.

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

Post by CurlyDave » Tue Apr 17, 2018 9:14 am

:arrow:
chevca wrote:
Tue Apr 17, 2018 8:08 am
...I dislike Walmart a little less seeing all the jobs they have or have created.
Way back, when Amazon was a bit player, only selling books, and Walmart hatred was at a very high level I read an interesting study. An economics professor, and I don't remember who, looked at quality of life in rural American towns. He found that when Walmart came to town, the effect was as if every person in the town had just received a 10% raise in salary.

Now, of course there was a certain amount of disruption as old, established businesses suddenly faced price competition and local pharmacies, grocery stores, etc. went under. It was the howling of these business owners that fueled most of the negative publicity about Walmart.

But, it turned out that the number of business in small towns actually increased when a Walmart moved in. There was suddenly room for specialty stores that carried things Walmart didn't.

Having moved to a small town to reduce COL in retirement I can tell you from experience that Walmart does improve quality of life for most of the people here.

Fast forward 15 years and the new whipping boy is Amazon, but the reality is that my choices in goods have expanded yet again despite living way out in the sticks, and Amazon is now putting price pressure on Walmart. As a consumer, what is bad about this?

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

Post by SundayMorning » Tue Apr 17, 2018 10:31 am

CurlyDave wrote:
Mon Apr 16, 2018 10:04 pm
aj76er wrote:
Sun Apr 15, 2018 2:40 pm
...100yrs ago, the largest US companies (e.g. Ford, etc..) employed ~100,000 workers. Today, the largest US companies (e.g. Facebook) employ ~10,000 workers.
When sorted by number of employees, the largest US employers are Walmart with 2,300,000 and Amazon with 541,900. https://en.wikipedia.org/wiki/List_of_largest_employers . Facebook is an afterthought.
Wow, imagine how many employees Walmart would have if they staffed their check out lines... :D

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

Post by Texanbybirth » Tue Apr 17, 2018 11:05 am

These kinds of threads (along with tax discussions) are some of the most fascinating to me on BH. Thank you all for the reasoned discussion!

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

Post by MinhN » Tue Apr 17, 2018 12:36 pm

My fear has always been the public stock market and its inability to capture global GDP growth. If all the capital is going into private hands or the very rich, the public stands to lose greatly in the growth of wealth. Thanks for the insight.

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

Post by SimpleGift » Tue Apr 17, 2018 1:10 pm

MinhN wrote:
Tue Apr 17, 2018 12:36 pm
My fear has always been the public stock market and its inability to capture global GDP growth. If all the capital is going into private hands or the very rich, the public stands to lose greatly in the growth of wealth. Thanks for the insight.
Your fear is well-grounded in fast-growing emerging markets, where share dilution for index investors is rampant. However, the reason why many folks invest in an emerging markets index fund is that not all of the index companies' earnings from growth are ending up in private hands — even after share dilution, earnings-per-share can strongly outpace that of slower-growing (and aging) developed markets.

This is my own hope and expectation — no guarantees — but it's also been reflected over periods in the historical record.
Cordially, Todd

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

Post by SimpleGift » Tue Apr 17, 2018 4:43 pm

^ Just to add a chart showing how emerging markets indexes can have huge bouts of outperformance relative to developed markets — despite massive share dilution — then languish in the doldrums for years. It's an investment like most other equities where one has to have a long time horizon, plus the patience and conviction to stick with it over the long haul.
  • MSCI Indexes, Total Returns since 1987
    Image
    Source: MSCI
Cordially, Todd

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

Post by VictoriaF » Tue Apr 17, 2018 4:48 pm

Good Listener wrote:
Mon Apr 16, 2018 8:11 pm
I would be 98 and dont want to be alive. Seriously, we cannot predict how immigration flows will go, how various things will happen, and whether moon occupancy will be an option. I will choose the moon or Mars if I have a choice.
Shoot for the moon. Moon is made of blue cheese which is healthier than Mars bars.

Victoria
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