Markets
The Economies Adding the Most to Global Growth in 2019
The Economies Adding the Most to Global Growth in 2019
Global economics is effectively a numbers game.
As long as the data adds up to economic expansion on a worldwide level, it’s easy to keep the status quo rolling. Companies can shift resources to the growing segments, and investors can put capital where it can go to work.
At the end of the day, growth cures everything – it’s only when it dries up that things get hairy.
Breaking Down Global Growth in 2019
Today’s chart uses data from Standard Chartered and the IMF to break down where economic growth is happening in 2019 using purchasing power parity (PPP) terms. Further, it also compares the share of the global GDP pie taken by key countries and regions over time.
Let’s start by looking at where global growth is forecasted to occur in 2019:
Country or Region | Share of Global GDP Growth (PPP) in 2019F |
---|---|
China | 33% |
Other Asia (Excl. China/Japan) | 29% |
United States | 11% |
Middle East & North Africa | 4% |
Euro Area | 4% |
Latin America & Caribbean | 3% |
Other Europe | 3% |
Sub-Saharan Africa | 2% |
Japan | 1% |
United Kingdom | 1% |
Canada | 1% |
Rest of World | 8% |
The data here mimics some of the previous estimates we’ve seen from Standard Chartered, such as this chart which projects the largest economies in 2030.
Asia as a whole will account for 63% of all global GDP growth (PPP) this year, with the lion’s share going to China. Countries like India and Indonesia will contribute to the “Other Asia” share, and Japan will only contribute 1% to the global growth total.
In terms of developed economies, the U.S. will lead the pack (11%) in contributing to global growth. Europe will add 8% between its various sub-regions, and Canada will add 1%.
Share of Global Economy Over Time
Based on the above projections, we were interested in taking a look at how each region or country’s share of global GDP (PPP) has changed over recent decades.
This time, we used IMF projections from its data mapper tool to loosely approximate the regions above, though there are some minor differences in how the data is organized.
Country or Region | Share of GDP (PPP, 1980) | Share of GDP (PPP, 2019F) | Change |
---|---|---|---|
Developing Asia | 8.9% | 34.1% | +25.2 pp |
European Union | 29.9% | 16.0% | -13.9 pp |
United States | 21.6% | 15.0% | -6.6 pp |
Latin America & Caribbean | 12.2% | 7.4% | -4.8 pp |
Middle East & North Africa | 8.6% | 6.5% | -2.1 pp |
Sub-Saharan Africa | 2.4% | 3.0% | +0.6 pp |
In the past 40 years or so, Developing Asia has increased its share of the global economy (in PPP terms) from 8.9% to an estimated 34.1% today. This dominant region includes China, India, and other fast-growing economies.
The European Union and the United States combined for 51.5% of global productivity in 1980, but they now account for 31% of the total economic mix. Similarly, the Latin America and MENA regions are seeing similar decreases in their share of the economic pie.
Markets
Beyond Big Names: The Case for Small- and Mid-Cap Stocks
Small- and mid-cap stocks have historically outperformed large caps. What are the opportunities and risks to consider?
Beyond Big Names: The Case for Small- and Mid-Cap Stocks
Over the last 35 years, small- and mid-cap stocks have outperformed large caps, making them an attractive choice for investors.
According to data from Yahoo Finance, from February 1989 to February 2024, large-cap stocks returned +1,664% versus +2,062% for small caps and +3,176% for mid caps. Â
This graphic, sponsored by New York Life Investments, explores their return potential along with the risks to consider.
Higher Historical Returns
If you made a $100 investment in baskets of small-, mid-, and large-cap stocks in February 1989, what would each grouping be worth today?
Small Caps | Mid Caps | Large Caps | |
---|---|---|---|
Starting value (February 1989) | $100 | $100 | $100 |
Ending value (February 2024) | $2,162 | $3,276 | $1,764 |
Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Mid caps delivered the strongest performance since 1989, generating 86% more than large caps.
This superior historical track record is likely the result of the unique position mid-cap companies find themselves in. Mid-cap firms have generally successfully navigated early stage growth and are typically well-funded relative to small caps. And yet they are more dynamic and nimble than large-cap companies, allowing them to respond quicker to the market cycle.
Small caps also outperformed over this timeframe. They earned 23% more than large caps.Â
Higher Volatility
However, higher historical returns of small- and mid-cap stocks came with increased risk. They both endured greater volatility than large caps.Â
Small Caps | Mid Caps | Large Caps | |
---|---|---|---|
Total Volatility | 18.9% | 17.4% | 14.8% |
Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Small-cap companies are typically earlier in their life cycle and tend to have thinner financial cushions to withstand periods of loss relative to large caps. As a result, they are usually the most volatile group followed by mid caps. Large-cap companies, as more mature and established players, exhibit the most stability in their stock prices.
Investing in small caps and mid caps requires a higher risk tolerance to withstand their price swings. For investors with longer time horizons who are capable of enduring higher risk, current market pricing strengthens the case for stocks of smaller companies.
Attractive Valuations
Large-cap stocks have historically high valuations, with their forward price-to-earnings ratio (P/E ratio) trading above their 10-year average, according to analysis conducted by FactSet.
Conversely, the forward P/E ratios of small- and mid-cap stocks seem to be presenting a compelling entry point.Â
Small Caps/Large Caps | Mid Caps/Large Caps | |
---|---|---|
Relative Forward P/E Ratios | 0.71 | 0.75 |
Discount | 29% | 25% |
Source: Yardeni Research (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Looking at both groups’ relative forward P/E ratios (small-cap P/E ratio divided by large-cap P/E ratio, and mid-cap P/E ratio divided by large-cap P/E ratio), small and mid caps are trading at their steepest discounts versus large caps since the early 2000s.
Discovering Small- and Mid-Cap Stocks
Growth-oriented investors looking to add equity exposure could consider incorporating small and mid caps into their portfolios.
With superior historical returns and relatively attractive valuations, small- and mid-cap stocks present a compelling opportunity for investors capable of tolerating greater volatility.
Explore more insights from New York Life Investments
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