Most of the world’s largest stock markets are dominated by a few industries.
In contrast, the US has the most diverse range of industries that investors can pick from.
According to Credit Suisse’s Global Investment Returns Yearbook for 2015, the three largest industries in 42 of the countries in the FTSE all world index make up at least 40% of total country capitalisation.
Meanwhile the US, along with France, the UK, and Japan, have the most diverse stock markets.
From the report:
Figure 11 shows the weight of the largest and three largest industries in 28 of the 47 countries in the FTSE All World index. It shows the five most concentrated by industry (at the top), the five least concentrated (at the bottom), plus all other Yearbook countries. In the five countries at the top, three or fewer industries make up the country’s entire capitalisation. The USA, Japan, France and UK are the least concentrated. But even here, the three largest industries (out of 40 in total) make up between 26% (USA) and 36% (UK) of country capitalisation.
It also notes that investors in most countries where there are fewer industries have less-diversified portfolios, fueling their demand for foreign stocks. “This underlines the need for global diversification across countries in order to diversify effectively across industries,” the report notes.
And with 52% of the global share, the size of the US stock market is unrivalled.
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