Paul's Insights: A strong case for thinking global
What a crazy world we live in. A new market index has been launched that measures the impact of US President Donald Trump's tweets on global asset markets.
The brainchild of US investment bank JP Morgan, the ‘Volfefe’ index is so-named by a combination of ‘volatility’ and ‘covfefe’ – a mystery word that many believe to be a spelling mistake, used in one of Trumps 2017 tweets.
The index gauges the effect of the President’s tweets on the US bond market. Happily, it turns out his comments have only a minor impact.
It’s all a bit tongue in cheek, though it does highlight how Trump has drawn attention to global asset markets. Maybe that’s not a bad thing.
As an investor it can be tempting to focus on home turf, and overlook opportunities that lie offshore. While there’s a lot to be said for investing in something you understand, there are drawbacks to focusing on the Australian share market.
The Aussie stock market is heavily concentrated in a few industries. If you want to invest in financial stocks or the resource sector, you certainly won’t have a problem.
One-third of ASX 200 companies operate in the finance sector. Almost 20% of listed companies are in mining and resources. That’s close to half the market in just two industries.
The world is a big place, and 98% of global shares are found outside Australia. Moreover, international share markets offer a far wider variety of industries, bringing valuable diversity to a portfolio.
The MSCI World ex-Australia Index confirms the breadth of industries that are available when you think globally.
Digitisation and artificial intelligence are radically reshaping our world. So it’s no surprise that tech companies like Microsoft, Apple, Facebook, and Alphabet (which owns Google) are among the world’s ten biggest listed stocks. In fact, the tech sector accounts for 17% of global share markets. Yet here in Australia the IT industry makes up just 2.5% of the share market.
Another of the world’s top ten listed companies is Johnson & Johnson – a major player in the global pharmaceutical industry, a sector where there is slim pickings in the Aussie market. It’s a similar story with industries like aerospace that have little or no representation on our local market.
A good selection of exchange traded funds with a global focus are listed on the Australian Stock Exchange. Or check out InvestSMART’s International Equities Portfolio – it offers a world of opportunity at very low cost for investors.
Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
Click here for more information about the InvestSMART International Portfolio, part of InvestSMART's capped fee range.