Margaret Thatcher, the former UK prime minister, set out her vision of “shareholder democracies” in the 1980s. Has that vision come closer to reality now? The answer is, “up to a point”. But whether stock investors have a greater stake in or make a greater contribution to their economies is less clear.
Data reveal a dramatic increase in shareholding via exchange-traded funds by individual and institutional shareholders. However, equity investment is becoming increasingly focused on mega-cap companies, leaving myriad others on the sidelines while key areas of economic activity are neglected by comparison.
The technology sector accounts for more than a quarter of the S&P 500 index, giving it an outsize influence on the market. Alphabet, Amazon, Apple and Microsoft together account for nearly one-fifth of the index's value. The market value of Apple alone reached US$3 trillion in 2023, roughly equal to the gross domestic product of Japan, Germany, India, the UK, or France.
In 2024, a record 1,485 ETFs were launched worldwide, with inflows reaching $1.6 trillion, taking its overall size in terms of assets under management to an all-time high of nearly $15 trillion.
As of May 2024, there were over 12,000 ETFs listed globally, chiefly of an equity nature, followed by bond funds and then those invested in alternative assets. According to various forecasts, the ETF industry may grow to around $40 trillion by 2032.
At the same time, equity valuations have soared, especially in the US. The S&P 500 rose more than 20% in 2024 after a similarly sharp gain in 2023, marking its best two-year run this century.
All this points to a surge in the popularity of share ownership and to some “democratisation” of ownership via the burgeoning ETF industry. But other factors are pushing in the opposite direction.
From public to private
John Plender, a Financial Times columnist, wrote in the paper recently that the recent growth in private markets has been “a phenomenon”, with private funds – which include private equity, venture capital, private debt, infrastructure, commodities and real estate – now dominating financial activity. Assets under management in private markets topped $13 trillion by mid-2023. And these markets are growing at an annual rate of 20%.
For a number of years now, private markets have raised more by way of equity than have public markets, where there has been a shrinkage as a result of share buybacks and takeover activity, and a dwindling volume of new issues.
This shift in capital raising to private markets isn’t quite what Thatcher had in mind in terms of dispersal of share ownership. Nor is the equity universe becoming more “democratic” in terms of its contribution to global economic activity.
The World Federation of Stock Exchanges estimates that the net number of companies listed on stock exchanges worldwide has been roughly stable at around 58,000 since the beginning of 2020. Yet, market capitalisation of listed stocks quadrupled to $120 trillion between 2000 and 2021, with Asia accounting for most of the rise.
Put simply, this means that the amount of money chasing a relatively fixed number of stocks continues to grow exponentially, a trend which points to hidden “asset inflation” on a scale much greater than the price inflation of goods and services.
It also implies a growing mismatch in the size of equities relative to the real economy. In short, stock markets, are not moving with the times into areas where the real needs are, such as combatting climate change, building physical and digital infrastructure and providing healthcare services.
Stock analysts might do well to include deeper research into these fundamental factors among their resolutions for 2025.