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SIMPLYBIZ INVESTMENT SERVICES

We sometimes get asked why we write so much about US stocks and the US economy . We are a UK-based investment manager , with significant investments in UK capital markets – and yet we talk much more about the US S & P 500 than the UK FTSE 100 . This might be a little confusing , and so we feel it is time we briefly explained why the US is so important for global investors – both in terms of economy and its capital markets .

BIGGER THAN EVER BEFORE .

The short answer is that US capital markets are really big . US stocks account for 61 % of the entire world ’ s stock market capitalisation . By contrast , Britain ’ s stock market makes up just over 3 % of the global market . All globally diversified investors will have a significant chunk invested in US markets for that reason . And , even if you avoided American stocks in your portfolio , the interconnectedness of the global financial system means that swings in US assets will have large knock-on effects on most investments – more so than any other region .

That shifts rather than answers the question , however . The US accounts for so much of global assets because global investors are so heavily invested in US assets . But why ? It is the world ’ s largest economy in nominal terms , and so has an outsized effect on global growth . But its share of global GDP is 26 % – well below its share of global market cap – and it trades less with the rest of the world than China .

In fact , the US ’ s share of global GDP has been gradually , albeit unevenly , declining since a post-WWII peak . Its share of the global stock values has fluctuated greatly in that time , but the trend has been up , in reverse of the economy . In the last decade and a half , its economic share has stayed virtually still – while its market cap share has soared . Trying to justify investors ’ American focus purely by the size of the US economy does not really work .