Who's got the biggest stock exchange?

MSNBC.com answers your questions on business, personal finance

Terry from down under is trying to figure out whose stock market on his side of the globe is bigger: Australia or New Zealand? (Sounds like he may be trying to settle a bar bet.) When it comes to investing in global stock markets, size does matter. But it isn't always the most important consideration.

How much is the New Zealand stock market worth compared to the Australian market? Which stock market in Asia is worth the most (market capitalization in US$ terms)?Terry V. -- Melbourne, Victoria, Australia

No worries, Terry. You Ozzies have the Kiwis beat hands down. According to the latest figures from the World Federation of Exchanges, the Australian Stock Exchange had a total market capitalization of $777.7 billion as of October, 2005 – up 15 percent from a year ago. Over in Wellington, the New Zealand Exchange reported a total market cap of $41.7 billion – up 9 percent. (On the other hand, if the Kiwis traded livestock along with their corporate stock, their exchange would be huge.)

Japan’s two stock exchanges still dominate the Asia-Pacific region in terms of the total value of all the domestic stocks traded on those markets. The top spot goes to the Tokyo Stock Exchange, which has a combined market cap of just over $4 trillion, followed by the Osaka Stock Exchange, with a combined stock value of $2.6 trillion.

By comparison, the granddaddy of all stock markets, the New York Stock Exchange, had a total market cap of nearly $13 trillion as of October – up 10 percent. The Nasdaq – with $3.5 trillion in market cap – was up just 7 percent.

Bigger markets do have some advantages: the most important is what's called "liquidity." The bigger the market, the easier it will be find a buyer for your stock when you're ready to sell. Most investors also want to know how fast a country’s stock market is growing. On your side of the globe, Japan's market have also been among the fastest growers: the Tokyo exchange was up 26 percent for the 12 months ending in October; Osaka was up 27 percent.

But chasing growth overseas can be risky. Your investment will be converted into the exchange's local currency, which may or may not hold up well against your local currency when you decide bring your money back home. You’ll usually have a much harder time getting information about stocks listed on an overseas exchange. And not all exchanges operate under the kind of strict regulations to protect investors that you may have come to expect. That’s why individual investors are much better off buying into funds managed by stock-pickers who are experienced with the quirks and pitfalls of buying foreign stocks.

Smaller international exchanges can be much more volatile than older, better-established markets. The fastest growing Asian stock market for the 12 months ended in October, for example, was the tiny Colombo Stock Exchange in Sri Lanka (market cap $7.5 billion) which grew by 105 percent. That kind of rally is pretty tough to sustain: past results, as they say, are no guarantee of future performance.

And the economic growth of a given country may or may not translate into stock market gains. Despite mainland China’s economic boom, stock investors in stocks listed there have gotten burned. The total value of all the stocks on the Shanghai Exchange - at $274 billion – is down 16 percent for the year ending in October. The once-hot Shenzhen Stock Exchange – worth $114 billion – is down nearly 20 percent. On the other hand, investors in the older, better-established companies listed on the Hong Kong Exchange have fared better: that exchange's market cap is up 28 percent to $982.