Strategies: The U.S. Stock Market Towers Over the Others. But at What Cost?

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Although the United States contributed mightily to the global financial crisis, it has been a source of financial stability for most of the last 10 years, attracting investments from around the world. The dollar has strengthened against most other currencies in that time, becoming, if anything, an even more central part of the world financial system, he added.

What’s more, the dollar’s strength has magnified the outperformance of the American stock market when compared against markets in most other countries.

India outpaced the United States in economic growth, and its stock market rose roughly 90 percent from December 2007 through last month, almost as much as the American stock market did, when both are tracked in their domestic currencies. But the Indian rupee lost ground against the dollar, and its weakness has wiped out most of the value of its stock market’s gains: When converted into dollars, the Indian stock market rose only 6 percent.

China is the rare country whose currency, the renminbi, actually has strengthened modestly against the dollar since the end of 2007. But that was not enough to offset the decline of the Shanghai stock market, which fell 48 percent in renminbi and 45 percent in dollar terms.

The Chinese stock market, like the United States market, is an outlier, Professor Prasad said, but in a radically different dimension: The Chinese market has significantly trailed other markets as well as the Chinese economy.

One reason is that the Chinese stock market, to an even greater degree than the United States stock market, represents only a small slice of the country’s overall economy. Publicly listed Chinese corporations, Professor Prasad said, tend to suffer from endemic structural problems: high debt levels, poor accounting disclosure and weak governance. Until these problems are solved, China may be risky for global stock investors.

The United States stock market, which has been a global magnet, is rife with its own anomalies. For one thing, Professor Prasad said, stock market growth has exceeded G.D.P. growth by so much and for so long that it bears close attention. “Over long periods there is typically a close correlation between stock market growth and economic growth,” he said. “And this is already a long period.”

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