Size of Market

It strikes me that, at least in the beginning, the size of market capitalization in one country does not relate to its GDP, except for the top three countries. Here is a chart which you may be surprised to learn too:

Market Cap Size Comparison

Source: Bespoke Investment Group

Look at how big Hong Kong’s market size is. Now think about what they do, comparing to let’s say, the industrial giant Germany, which ranks 8th, to HK’s 5th. What does that tell us?

Well I think the size of the market shows how attractive that place is for financial activities, not necessarily related to its GDP. For a company to list in an exchange, there are many factors dictating the decision of where. Amount of liquidity in the place, amount of funds to be raised, laws and regulations and local pool of talents to facilitate daily operations are all part of it. The most important aspect is clearly how much money can one company raise when being offered in such market, and for that matter, with her efficient financial and legal framework, and being the unique southern gateway of China, Hong Kong has access to huge stream of financing sources, as apparent in Hong Kong’s large share of giant Chinese companies listed in her market. These factors boost Hong Kong market size beyond most industrial countries’ in the world.

Now why is Canada so high up in the ranks then? Because of its sound financial system, rich resources, close proximity to the US or the strength of the loonies? Take your pick — I think it is a combination of all.

Another trend is that except Russia (thanks to its rich resources most noticeably oil), market size of all European countries is falling. This is another angle to look at the geo-political an economic shift of focus, from Europe to BRIC. Note that Canada increases her share almost as fast as Australia, another resources rich country.

Market Cap comparison, 2005 vs 2011

Source: Bespoke Investment Group

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