Japan's stock market declined nearly 20% in the days immediately following the tragic earthquake that hit the country on March 11th. While Japanese equities have bounced back a bit, the fall allowed China to surpass Japan in terms of percentage of world market cap.
Below is a table showing the percentage of world market cap for the largest equity markets in the world. As shown, the US continues to hold onto the number one spot by a wide margin at 30.43%. Japan had the second largest market cap in the world at the start of the year, but China has now surpassed Japan and currently ranks second. China currently makes up 7.38% of world market cap, while Japan makes up 7.05%. The UK ranks fourth at 6.49%, followed by Hong Kong (4.77%), Canada (4.38%), and France (3.59%).
The table also shows where things stood at the start of 2005, the start of the last bear market, and the start of the current bull market. While things haven't changed dramatically over the past few years, the big shift came in the mid-2000s when China and other emerging markets were growing rapidly. As shown, China made up just 1.25% of world market cap at the start of 2005 while the US made up 42.22%. By late 2007, China had grown to 5.89%, and the other BRICs all saw their % of world market caps double. The US, on the other hand, dropped from 42.22% to 31.07%.
Below is a chart that highlights how the percentage of world market caps have changed since the start of 2005 (ex-US). Here it's easy to see the gains that emerging markets have made at the expense of developed nations.
Finally, we provide a chart showing the % of world market cap for Japan and China going back to 2004. China didn't even rank in the top ten in 2004, while Japan made up nearly 12% of world market cap. Within four years, China and Japan were essentially the same size. During the financial crisis, China fell more than Japan, allowing Japan to move solidly back into 2nd place. However, as mentioned earlier, the recent fall in Japan has allowed China to take over the #2 spot.
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