The Strategist

Study: Passive investors control global stock market

10/23/2019 - 06:01

Institutional investors (mutual and pension funds, insurance companies) own shares, which account for 41% of global market capitalization, follows from a new OECD report. In the USA, such structures account for 60% of all investments; they also dominate the markets of Great Britain and Canada. The authors of the study note that funds mainly practice passive index-based investing without analyzing specific companies. This weakens one of the key functions of the stock market - assessing the activities of issuers and providing new companies with capital that would facilitate their growth.

In total, at the end of 2017, there were 41 thousand publicly traded companies in the world; their total value was estimated at $ 84 trillion. The OECD report used data on 10 thousand companies in 54 markets (approximately 90% of global capitalization). The largest market is the US (36% of capitalization), followed by China (12%), Hong Kong, Japan, South Korea, Great Britain.

The second largest category of investors after institutional ones is state structures (14% of capitalization). First of all, these are central and regional governments, then sovereign and pension funds, state-owned companies. In 8% of all companies placed on the markets, at least half of the shares are held by precisely such structures - their total investments amount to $ 10 trillion. At the same time, investments in this sector in China account for 57% of the global capitalization owned by government agencies. The state is an important player in the markets of Saudi Arabia, Malaysia and Norway, where its share ranges from 34% to 46%. The remaining large categories of investors - private corporations (including holdings), strategic individual investors (families) - account for 18% of the total capitalization.

The OECD noted a high concentration of capital as a risk of the global stock market: in half of the companies placed, the three largest shareholders hold more than half of the capital. Cross-border investments account for one fourth of all investments, 75% of this volume is provided by investors from the USA and the EU.