As we know a fierce trade dispute between the USA and China has been going on for over a year now. At the forefront is the reduction of the trade deficit. But at the top is the struggle for the technological and economic supremacy of the two major powers in the coming years. The gross domestic products of the two states have already converged significantly (China 13 trillion dollars – USA 20 trillion dollars). Only a decade ago the ratio was 1 to 3. However, the current market capitalization of the respective stock exchanges was different. But that, too, could change in the foreseeable future.
Index adjustments at MSCI for China
China currently represents 19 percent of the world’s national product. In the MSCI World Stock Index, however, the share is only a few percent. The 3500 domestic stocks have a market value of about six trillion dollars. They are mainly held by domestic shareholders and are therefore subject to large fluctuations. In the US the S&P 500 alone has a weight of over $22 trillion. The dominance of the US stock markets becomes abundantly clear in the weighting of the MSCI World. This index represents the 23 largest industrial nations: US market share almost 60 percent. A weighting that by no means corresponds to the country’s share of global GDP.
The index provider MSCI has announced that it will gradually adjust China’s weighting. In the MSCI benchmark for emerging markets the ratio of Chinese domestic stocks is still very low at 0.7 percent. However, it is expected to multiply by spring next year. This could benefit China’s stock markets if more international capital flows into the country. The Chinese stock index has already risen by 33 percent in 2019. This is despite the trade dispute and a slowdown in GDP growth to 6.2 percent.
Things can be turned around as we like. China is on the way to catching up in all areas. With 1.4 billion citizens and millions of already very well educated employees, especially in the field of new industries, China is aspiring – still officially representing the status of a developing country – to become a member of the economic middle class. GDP per capita. The USA does not like this and they will use all levers to stop the challenger in his forward thrust – presumably also in the field of stock markets.
So far there has always been reports from New York, “live from the financial capital of the world”, so far!