Comments on: The relationship between equity prices and the real economy http://www.datadiary.com.au/2010/03/04/the-relationship-between-equity-prices-and-the-real-economy/ An investor's diary of economic data, corporate earnings and market sentiment Wed, 23 Nov 2011 17:50:22 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Rohan Clarke http://www.datadiary.com.au/2010/03/04/the-relationship-between-equity-prices-and-the-real-economy/comment-page-1/#comment-365 Rohan Clarke Sat, 06 Mar 2010 22:45:20 +0000 http://www.datadiary.com.au/?p=1584#comment-365 It's been taxing my synapses. Intuitively there should be a link between GDP and equity market capitalisation - but it depends on the market. The US has a relatively high tech component that should grow faster than GDP (ie. efficiency gains) while the financials should be anchored more to GDP given their earnings are ultimately a function of demographics (and in the shorter term, leverage in the system). I'm putting together a chart on international comparisons... It’s been taxing my synapses. Intuitively there should be a link between GDP and equity market capitalisation – but it depends on the market. The US has a relatively high tech component that should grow faster than GDP (ie. efficiency gains) while the financials should be anchored more to GDP given their earnings are ultimately a function of demographics (and in the shorter term, leverage in the system).

I’m putting together a chart on international comparisons…

]]> By: Justin http://www.datadiary.com.au/2010/03/04/the-relationship-between-equity-prices-and-the-real-economy/comment-page-1/#comment-364 Justin Fri, 05 Mar 2010 03:00:10 +0000 http://www.datadiary.com.au/?p=1584#comment-364 That final chart is an interesting one. I guess it underlines the 'financialisation' of the US economy (and most advanced economies). It would be instructive to see the same chart for the UK, which has possibly been even more 'financialised' than any other economy. But it raises the question - should the equity markets neccesarily follow in line with trend GDP growth? Should it matter that equity markets have a higher value than the nation's GDP? It's hard to say really. That final chart is an interesting one. I guess it underlines the ‘financialisation’ of the US economy (and most advanced economies). It would be instructive to see the same chart for the UK, which has possibly been even more ‘financialised’ than any other economy.

But it raises the question – should the equity markets neccesarily follow in line with trend GDP growth? Should it matter that equity markets have a higher value than the nation’s GDP? It’s hard to say really.

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