Summary

• GDP weighting asserts that a country’s role in a global benchmark should reflect the scale of its economy.
• Many large economies have equity markets that represent a limited share of actual domestic activity due to ownership structures, banking reliance, state enterprise mixes, or listing cultures.
• In a market cap-weighted world, dominance by the most richly valued markets translates into structural sector skews, most recently demonstrated in the bias toward U.S. technology.
• When a single market’s listed equities become an outsized share of global market cap, market-cap-weighted investors inherit a large implicit bet on that market’s valuation regime, sector composition, and currency.
• Market-cap weighting is a highly efficient way to hold the market, but it is not the only way and comes with its own set of problems.

By Andreas Schroeder, Head of Index Research and Design, EMEA, and Janki Khatri, Quant Analyst, Equity Research

Executive summary

Global equity benchmarks are typically market-capitalisation weighted, and there are many good reasons for that. However, they are also

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