Megacap tech stocks aren’t just powering the U.S. stock market â they’re also holding the world together. U.S. equities now comprise 70% of the MSCI World Index, the benchmark for large- and mid-cap companies across 23 developed markets. This level represents the largest country weight since the index’s inception in 1986; and correspondingly, the lowest exposure to non-U.S. stocks. The top five largest-cap U.S. stocks â Apple , Microsoft , Nvidia , Amazon and Meta â account for nearly a fifth of the index. The MSCI World Index shifts regional and country weights based on broader economic trends. Japanese equities accounted for more than 40% of representation during the 1980s prior to the asset price bubble. In the early 2000s, European markets grew to more than a third of the index’s weight due to strong economic growth. However, no single market has achieved such a high level of concentration as the U.S. market. To put this into perspective, “if you allocate $1 of your retirement account passively to URTH,” â the corresponding iShares ETF to the MSCI World index â “70 cents goes into the US equities and 18 cents into the top 5 U.S. stocks,” Goldman Sachs managing director Scott Rubner said in a note Feb. 12. The lack of diversification is risky because it makes the global market reliant upon company-specific factors. But for asset managers â particularly those focused on delivering returns over a shorter time frame â there aren’t clear diversification alternatives that can deliver growth. Risks BCA Research chief investment strategist Peter Berezin said this concentration is reminiscent of instances that preceded steep market downturns. High levels of market concentration in the late 1920s to early 1930s, as well as 2000, coincided with a market top, he noted. Ironically, the stock market tends to rise during periods of increasing concentration, Berezin said, while noting that it’s unclear whether concentration will further…
2024-02-19 09:05:00
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