But switch back for a minute or two. While 10,000 may be only a number, and while stock markets may predict the world’s headlines better than headlines interpret the world’s stock markets, America’s 17-year bull run still matters immensely to the world. It isn’t just because the wealth that millions of Americans have gained in the market has enabled them to keep shopping at a time when the world badly needs a customer. There’s a more fundamental reason. It has to do with the way that America judges its companies–which, after all, is what the humble, 30-stock Dow symbolizes–and the increasingly powerful sway that standard holds around the globe.
How are the world’s stock markets connected? The links are strong, but subtler than those breezy headlines would indicate. They date back to the 1980s, to the Thatcher-Reagan revolution. The wealth unlocked in the wave of creative destruction in that period, says Roy Smith, a finance professor at New York University, was a “huge message to the rest of the world.” Not an entirely welcome one, to be sure. But various countries–Germany is a fine example–came to believe that developing their equity markets along American lines was a prerequisite to solving some major economic problems. So the Germans (and the French and the Brazilians, among others) went to work, streamlining their stock markets and privatizing huge companies. American investment banks and investors played a major role in the process.
What these countries were adopting was not just a means of finance. It was a completely different approach to business, one that prizes profits and–less noted, but equally important–openness. “Equity,” says Morris Goldstein of the Institute for International Economics, “is information-intensive.” In the old economies bankers (or bureaucrats) allocate capital based on exclusive information. In the new ones the market does it, based on information companies are required to make public–and how well the companies explain themselves. To the delight of brokers and journalists, every stock is a story. It’s no accident that telecom and media companies have both driven and benefited from the global embrace of equities. Or that you find similar communicators everywhere. America has CNBC’s Maria Bartiromo and her TV reports from the New York Stock Exchange; Brazil has Miriam Leito, who reaches millions with her comments on business each morning for TV Globo, the country’s 24-hour news channel.
With like-minded storytellers passing the same sorts of stories around the world, you get a link that Smith calls harmonic. It usually manifests itself when one market moves dramatically, up or down–last fall’s global stock-market tumbles being the latest case in point. New York is nervous; shouldn’t we be? Over the medium term, though, the markets tend to go back to reflecting local economic conditions–for example, strong growth in the United States, stagnation in Germany.
The next link is more substantial but, paradoxically, harder to gauge. It results from the oft-noted mobility of the world’s capital–which is another way of saying that the world’s markets now have a lot of investors in common, and that what happens to them in one place affects what they do in another. The emerging-markets meltdown over the last two years made this painfully clear, as investors covered losses in Brazil by selling stocks in Hong Kong. But the same-investor syndrome moves the biggest markets, too. Japan’s economy remains a mess, yet the Nikkei is the best-performing stock index in the world this year. Why? Well, explains Steven Schoenfeld of Barclays Global Investors in San Francisco, one result of the strong U.S. market is an outsize presence for U.S. stocks in some huge, global portfolios. As they say in the trade, these investors need to rebalance. And with companies such as Sony and Mitsubishi promising major restructurings, a move into Japan strikes many of them as opportune.
These American-style corporate restructurings show the most important link of all. More and more, the world’s top companies must seek not just their customers but their investors all over the globe. Sony may not be in the Dow (or the S&P 500, the broader index favored by finance professionals), but it has to compete for capital with companies that are. And the real message that the Dow sent the world when it topped 10,000 was that these are the most successful (read: profitable) companies around. BGI’s Schoenfeld says some big investors are interested in the idea of a global index of, say, 300 supercompetitive global giants. Only God (and perhaps Miriam and Maria) knows what fortunes may be lost and won before the Global 300 reaches any milestones. But until it does, anyone who wants a sense of where the business world is headed might as well tune in the Dow. It’s leading the way.
