Two years ago, Hong Kong equities were enjoying one of the biggest rallies and investors could have made a fortune just by sticking to the hottest counters such as Hong Kong Exchanges & Clearing (00388.HK) or brokerage plays.
It would have been a waste of time convincing local investors back then the need to look beyond Hong Kong equities.
Likewise, given the strong performances of US equities in recent years, US investors generally don’t feel the need to look overseas either.
Take Europe as an example. Even though interest in European equities has picked up after the French presidential election and the diminishing risk of a breakup of the EU, US investors’ exposure to Europe is still rather low despite cheaper valuations of European equities.
A Vanguard research shows US investors put 80 percent of their assets in domestic stocks.
Such home bias is also reflected in ETFs. According to iShares data, US investors have invested US$725 billion in ETFs related to US stocks since 2010, but only US$51 billion in Europe-based ETFs
From 1970 until now, the S&P500 outperformed the MSCI Europe Index. But if the measurement is taken between 1970 and 2009, the latter actually marginally outperformed the former.
European equities did substantially underperform over the past few years, but if other periods are taken, the European market sometimes performed far better.
It’s fine not to diversify as long as you know exactly when to get in and get out. Otherwise, diversification still has its meaning.
The full article appeared in the Hong Kong Economic Journal in Chinese on May 26
Translation by Raymond Tsoi
[Chinese version 中文版]
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