Money Supply And Stock Markets In 2015 (12 Charts)

Last year, the Telegraph gave us an interesting infographic of the cheapest stock markets in 2014 based on PE and CAPE ratios.

In this article I take another look at the major stock markets in the world and see how they are doing in 2015.

Money Supply Vs Stock Market Performance

A quick glance at any chart of money supply will show how levels of money always increase over time. This is consistent with the principles of inflation and the way governments print money in order to drive economic growth at sustainable levels. It can be interesting to watch money supply plotted against the stock market I think.

When money is created, it must have somewhere to go. So it makes sense that a good portion of money supply will be directed back into investments, domestic businesses, and the stock market.

This has been the biggest macro trend over recent years and we have seen nearly all central banks print money (in the form of cutting interest rates and QE programs) in order to increase liquidity and drive growth back into the economy.

This increase in money supply has naturally helped stock markets recover from their 2008/2009 nadir.

Money supply

In the next chart from ieconomics, the US stock market has been plotted against the US M2 money supply. (Money supply is measured in billions of US dollars).

Stock Markets 2015: Rest of the world

Europe

Germany

China

Japan

France

UK

Brazil

Russia

Singapore

New Zealand

For investors without direct access to these markets, they should consider ETFs which can track the individual stock markets of the countries mentioned above. They can also consider ADR shares, which are foreign companies that trade on US exchanges.

Data Source: Money supply and stock market data from ieconomics.com, dated February 2015.

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