Signal US equity stands at 2.4 times corporate net assets against about 1.0 elsewhere

Summary

MGI finds that the United States is only one of several countries with high equity relative to GDP, but it is unique in how far equity exceeds corporate net assets. US equity values climbed to 2.4 times net assets, compared with ratios near 1.0 in most other economies. Economic theory holds that this ratio, known as Tobin's Q, should settle near one over the long term under perfect competition. The report ties the US gap to record profits, with returns on invested capital rising and the corporate profit share of GDP doubling against pre-2000 averages. It concludes that such valuations can only be sustained if US corporate earnings keep growing faster than GDP for a long time.