After a great first quarter, it would not be surprising for investors to favor US companies when investing in the stock market. They have substantially outperformed their foreign counterparts, and they seem like a safer bet. Below, I’ve embedded a chart from Bespoke’s blog that displays US stocks’ total value as a percentage of the world stock market.
There are a few interesting things to note:
- The US only makes up about a third of the world’s total market capitalization. Those investors looking to come close to the world market’s actual weightings will need to consider this and make sure their portfolio has substantial international exposure.
- The US has been losing ground over the last 10 years. Ten years ago, the US represented about 45% of the world market cap, while it is 33% today. This is a trend that many economists believe will persist, mainly because of demographic shifts happening in the developed and emerging economies and the expansion of the middle class in the emerging world.
- The US still has an astonishing amount of wealth. Approximately 313 million people are living in the US. There are over 7 billion people in the world. That means that the US houses less than 5% of the world’s population but is home to over a third of the stock market capitalization.
What does this mean for investors?
We should continue to focus on global diversification in our portfolios. The US stock market only represents a third of the world’s stock market value. It would be naive of us to think that the other two-thirds of the world’s stock market is not growing or creating value for their shareholders.
