For the past 125 years, U.S. stocks have been dominant in the global investing arena, measured by market capitalization. However, China is rapidly closing the gap as it inches closer to becoming the world’s largest economy and challenging the United States in this space. Despite this, China’s GDP has grown 6.5 times faster than America’s since 1992, but U.S. stock returns have been only 3.5 times higher.
The strength of U.S. stocks can be attributed to regulations put in place during the New Deal era that effectively regulated the markets, making them appealing to risk-averse investors worldwide. Additionally, the U.S economy derives more growth from publicly traded companies compared to China where state-owned enterprises play a significant role.
However, dominance in the stock market can be transient and Japan serves as a cautionary tale as its markets experienced a boom in the late 1980s but crashed due to asset bubbles and excessive borrowing. Therefore, it is essential for U.S stock investors not to become overly complacent or confident in their position of power and remain vigilant for any potential risks that may arise in the future
