According to the World Bank, global trade was down by 9.7% in 2020. The pandemic had a similar impact on the global economy, which contracted by 3.7%. However, 2021 is turning out to be a lot less bleak from an economic perspective - many countries now have had successful vaccination drives for their respective populations, with the course charted for future vaccination drives. The global investment community is abuzz with ideas and theories with regards to how the different markets are going to react to the evolving pandemic situation. In this situation, the global fervor to buy US stocks still remains intact.
Why investing in US stocks is important for Indian investors:
1) US Stock Market is a much larger, more robust ecosystem – The American stock markets account for 65% of the MSCI World Index, which is a representative body of global stock markets. As a result of this size, the US stock markets remain relatively isolated from events in other countries. For example, when there were concerns about a potential rate hike in the US, the Indian stock market also suffered. However, such an economic event in India is unlikely to have an impact on the US market. The respective markets’ response to the Covid pandemic is further proof: while the Sensex has risen 27% since January 2020, the S&P has risen 36%. As an Indian investor, investment in the US stock market provides diversification to your portfolio, and prevents it from being susceptible to India-specific shocks.
2) FAANG – This term has become quite popular in recent times, and rightly so. FAANG is an acronym for Facebook, Amazon, Apple, Netflix, and Google, an exclusive club of the most prominent technology giants listed on the American share markets. These are global companies that are leaders in their respective industries and have demonstrated strong growth over the years, providing shareholders with attractive returns. Additionally, FAANG stocks have demonstrated a relatively modest amount of volatility. By investing in US stocks, investors can build a portfolio comprising any one of the FAANG stocks, or a combination of them all.
3) Hub of innovation – The US is a hub for technological advancement and innovation, with companies creating new products across a range of sectors, including artificial intelligence, biotechnology, and fintech. These companies, as well as other international companies that are disrupting traditional sectors in their home markets like Alibaba from China, Shopify from Canada, and Mercado Libre from Argentina, are choosing to go public in the US. With investment in the US stock markets, you have the opportunity to participate in these emerging companies and themes, and benefit from the companies’ growth.
4) Consistently outperforming the Indian markets – over the past 10 years, the American stock markets have provided better returns than the Indian stock markets - Rs. 5 lacs invested in the US (S&P 500) in January 2011 would have yielded Rs. 24.7 lacs vs. only Rs. 13.5 lacs if it was invested in India (BSE Sensex). Another factor is that the American stock markets have been much less volatile than the Indian market. The Covid pandemic was a good example of this, with a high level of uncertainty in the markets leading to a market correction in March 2020. However, the US stock markets saw a much quicker recovery and have continued to outperform the Indian markets. For instance, Rs. 1 lac invested in January 2020 in the US stock market vs. the Indian stock market would have yielded Rs. 1.58 lacs vs Rs. 1.29 lacs in July 2021, a return of 35.7% vs 18.5%.
Thanks to the great strides in technology, investing globally is now easier and more streamlined than ever. Here’s more on how to buy US shares by investing in their stock markets.
Globalise provides a simple, digital platform to enable international investing. For investors who are new to international investing or would like to benefit from expert guidance, Globalise offers curated portfolios that enable single-click investments into a basket of stocks and ETFs.
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