GalaTime

Here is a recent (fairly detailed) Bloomberg article: BRICs Prove Cheap Even as Greenspan Warns of Bubble on why the BRIC (Brazil-Russia-India-China) stock markets might offer value for investors.

The simple math of comparing the value of companies with their countries’ combined gross domestic product shows the so- called BRIC markets total $1.71 trillion, or 25 percent of their GDP. U.S. equities available for trading, by contrast, are worth $13.98 trillion, or about the same as comparable GDP, according to data compiled by Morgan Stanley and Bloomberg. Stocks in all industrialized nations account for 81 percent of GDP.

The four countries account for 14 percent of global GDP, while their stocks make up 5.1 percent of the world’s market value, based on shares available for trading.

I think the article should have gone one step further and looked at each country individually. As I mentioned in my recent post, the Market Cap to GDP ratio for India is almost 1.5. By the logic of the Bloomberg article, that would make the Indian market quite overvalued by global standards. I had also created this chart back in May 2007:

Since then, the market indices (Sensex & Nifty) have climbed another 40% - we are now in uncharted territory in terms of the MCap:GDP ratio. Even if the economy were to grow at 10% a year for the next 3 years, while the stock markets stayed put, we would still be far from ‘under-valued’.

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