The US has about 60% of the global investable public equity market by market cap but only 25% of global GDP.
The US public stock market is also at the highest valuation, by any measure you can come up with, since 1929.
I personally wouldn't be undiversified
The author does not assume this—rather this is held up as an assumption that might be wrong.
The article is structured as a list of 5 assumptions that would be tempting to make but could be incorrect, and this is one of them.
GNP is similar in spirit, but it’s still not right because foreigners hold a ton of US equities.
https://seekingalpha.com/article/4146992-how-global-is-s-and...
How are you defining valuation? And highest valuation relative to what (other markets, itself...some other benchmark)?
This is definitely not a true statement.
https://bit.ly/3n6dE6t (Citation to PV)
The question now is "what happens next?" given rising rates and crazy high US valuations
Historically, the rest of the world handles recessions terribly.
Japan, once an economic engine, is stalled... still.
Europe is aging and they're still stuttering after 08. Don't expect them to make any surprise economic growth jumping past the US anytime soon.
China + other emerging seem like good promises, but china specifically is a huge regulation risk since those companies operate at whim of a government scared of big co's. Also with Evergrande as example, their economy is real estate driven and highly over-leveraged which seems like a major risk to me.
All in all, i'm personally keeping investments in america unless i see real ex-us promising growth. So i think "what happens next" is the global rich keep their money in US assets while they slosh around desperate for returns and speculative investments trying to beat inflation. So... imo more of the same but more stressed this time :)
GDP doesn't matter for equity valuations, excess profits captured by a company do. If 99% of companies are in intense competition and make no profit, only enough income to pay their expenses, but one company comes up with a new product no one else can make, they can charge whatever maximizes profit and that's where equity value comes from.
If you want something to justify high valuations, forward PE is a good measure. If you want a margin of safety, trailing PE and trailing dividend yield are better measures. Margin of safety is thin on the ground these days, sadly.