The question I’ve most heard from financial investors and advisors is, “Why do you focus so much on investing outside of the United States?” I’ve played a role in creating 5 investment indices, but the one that has attracted the most attention (and the most capital) is the one focused on international equity, VIEQX. This questions comes up often probably because many investors exhibit something called “home bias,” which, according to Investopedia, refers to the tendency to “invest in a large number of domestic equities, despite the purported benefits of diversifying into foreign equities…” For many investors, the conversation can tend to focus only on which US stocks to buy. But there are other countries out there to invest in, and (per the infographic below) many of them are poised for fast growth, faster even than the United States.
VisualCapitalist.com has compiled a list of the countries that are expected to grow the most by 2030. According to these projections, the United States is set to lose its place as the 2nd largest economy adjusted for PPP, having already lost its place as 1s. According to VisualCapitalist,
“[T]he bank sees developing economies like Indonesia, Turkey, Brazil, and Egypt all moving up the ladder – and by 2030, it estimates that seven of the world’s largest 10 economies by GDP (PPP) will be located in emerging markets.”
Critically, Asia is projected to go from 28% of the global economy to 35%. A few years ago, it was at 20%.
VIEQX is generally overweight compared to a cap-weighted index in EM Asia, and in many of the countries that are expected to rise to the ranks of the world’s largest economies.
In Indonesia (projected to go from 7th to 4th), Turkey (projected to go from 9th to 5th), and Brazil (projected to go from 8th to 6th), we have a higher weighting than cap-weighted. For those countries at the bottom, the ones that are expected to lose position, we also have a lower investment than cap-weighted. Japan is projected to drop from the 4th largest economy to the 9th, and cap-weighted gives them nearly twice what we do. We have a close weighting in Germany – projected to go from 5th to 10th – though ours is slightly lower than cap-weighted.
In many ways, America is still the foremost economic power in the world, and of course it will continue to grow – as will other developed markets. But the data here show that it is not predicted to grow as fast as emerging markets, and that in general, western developed economies are predicted to lose their preeminence, so investors in these countries should expand their options by looking overseas to the economies that are expected to improve and grow the most.