Why Should We Invest in US Stock Market?
The US stock market is home to some of the largest and robust companies with sturdy underlying fundamentals, who are poised to prosper despite the uncertain future.
Taking your current portfolio into account, an addition of US equities will add stability without sacrificing returns. Investing in global equities as an Indian gives you the opportunity to participate in the growth of global economies. Here are a few reasons why one should invest in US stocks:
Why Should We Invest in the US Stock Market?
- Global Exposure – A majority of listed companies in the US are foreign companies that have penetrated the US market to take advantage of a large number of investors and to be where the money is. While being invested in US stocks, actual exposure to the US economy is relatively low. Purchasing stocks from the US market will have you not only be invested in the American market but also in international markets giving you access to the whole world.
- Largest and Most Liquid Market – Market Capitalization refers to the total value of outstanding shares of a listed company that can be traded. The US is the topmost country in the world in terms of market capitalization as can be clearly seen in the below-given graph. The market capitalization of the US is nearly five times that of China and fifteen times that of India. The US market is also the most liquid market in the world with more than double trades in the stock exchange as compared with China.
- Currency Exposure – When one invests in global stocks they are exposed heavily to currency exchange rate fluctuations. One must take precautions while investing in equities with volatile and unstable currency.In the last decade, the Indian Rupee has depreciated approximately 37% against the US dollar.
By taking this into consideration, we can see how an investor who has invested in US stocks would have seen their returns boosted by the depreciating rupee over the years. India’s economy in comparison to the US is more likely to remain a higher inflated economy, keeping the trend unchanged. Diversification and long term positioning will keep investors in the green and help them benefit from rupee depreciation.
- FAANG – Simply put, the acronym FAANG represents five stocks which are Facebook, Amazon, Apple, Netflix, and Google. Traded on the NASDAQ, investors turn to technology companies when they are looking to invest in growth stocks and a large amount of media attention and investors’ portfolios are concentrated around FAANG.
The members of FAANG are so massive and profitable that they generate more than a significant amount of the Gross Domestic Product (GDP) in the US. They currently have a market capitalization of around US$ 3.1 trillion and they make up over 10% of the total value of the S&P 500.
- Performance – Since 1990, the US markets have greatly outperformed the Indian markets. The Compounded Annual Growth Rate (CAGR) of the BSE 500 is 7.86% and the S&P 500 is 10.06%.
There is a multitude of opportunities in the US market and analysis shows that the time has come to consider this market to diversify your assets outside the country as well. The US is an economic superpower and its innovative nature offers a competitive edge to its investors. Several factors make the US a highly lucrative market.
In the long run, as an investor investing in US stocks helps with diversification in terms of geography as well as the ability to invest in large companies, the scale and size of which is unavailable locally.