What Investors Need to Know About Today’s Global Economy

Our last blog series, Will that Be US Again? looked at the place of the U.S. in the world and some of the challenges we face. In this posting, we’ll look at what these changes to the global economy and markets mean to us as investors.

Technology has accelerated the interconnectedness of the world in terms of trade and investment, giving companies access to opportunities across the globe. Most of us know that we buy lots of things that are made overseas and from companies domiciled overseas. But it goes for U.S. companies as well. The days when corporate America generated all of its revenues stateside are long gone. In 2010, 46.3% of the revenues of companies in the S&P 500 (reporting foreign sales) were generated outside the U.S., up from about 30% a decade ago. We especially sell technology overseas—56% of IT sales were foreign.1 So even if you just invest in U.S. companies, you are likely getting substantial exposure to growth worldwide.

More countries are becoming more advanced, as per capita incomes are rising and political and financial systems are maturing and becoming more and more stable. The latest World Economic Outlook from the International Monetary Fund forecasts 5.4% growth for emerging and developing economies this year after 6.2% growth in 2011.2Advanced economies’ more muted projections call for 1.2% growth in 2012 after 1.6% last year. The growth projections chart below from JP Morgan Asset Management depicts something similar in graphic form.

JP Morgan Growth Chart
Source: JP Morgan Asset Management

What does this mean for investors? It means investors have the opportunity to invest in companies and markets around the world as those markets grow to represent more of the world’s total. The chart below from our friends at Dimensional Fund Advisors illustrates the changing landscape of global stock markets. Just 20 years ago, emerging markets represented less than 1% of total world market capitalization. Today that number stands at 12.28% (after peaking at 13.64%). The U.S. share of world market cap peaked at 54.60% in 2002, only to fall to 47.04% today.3

Value of Stock Markets Chart
Source: Dimensional Fund Advisors

The explosive growth in overseas markets, especially emerging, has made the traditional S&P 500/ BC Aggregate portfolio a thing of the past. While we retain a U.S. bias given that we live in a dollar-based economy, our portfolios have substantial exposure to international developed and emerging markets stocks and bonds, reflecting the new reality in world economies and markets.

 

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
Martha Post
Martha Post

CFA | Principal, Chief Operating Officer

Martha Post, CFA, is a Principal and the Chief Operating Officer for Hewins Financial Advisors, based in Redwood City, CA. Martha oversees Hewins' operations and client service activities and also serves as a member of its Investment Committee, with nearly 30 years of experience in investment management, research and analysis.

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What Investors Need to Know About Today’s Global Economy

time to read: 2 min