The world market cap essentially shows the ‘split’ of world markets, using the market price per a company’s common share multiplied by the number of common shares outstanding. It is a good indicator of economic activity as it shows, comparatively, not just the value of companies but also the relative size of one country’s markets to another.[i]
If we compare NZ to the USA, we can see that the NZX 50 sits at 0.1% of the world market by capitalisation whereas the S&P500 sits at 59%.[ii] This comes down to sheer scale of markets as well – there’s little chance God’s Own would compete for size with markets like the USA. What we need to think about here is comparative returns performance.
From the start of 2020 to now, the US market cap has seen a return of 15.17% per annum while NZ has seen only 0.15%.[iii] You do not have to be a mathematician to see the difference between those numbers… NZ has not had a good few years.
Do we blame Ardern and Labour Government? Covid? Inflation? The RBNZ? Or all four? Any investment blogs with community commentary will give you a plethora of reasons, most of which focus on the four, with vim and vigour. How about we instead embrace diversification – the only free lunch in the investment world?
Realistically, one country (or industry, or asset class) is always going to perform better than another at any given moment in time. Volatility is part and parcel of investment. If we look at NZX 50 vs S&P500 again over the past five years, we can see that the S&P500 has returned 54.5% vs the NZX 50 17.5%, both expressed in local currency.
If someone had been invested solely in NZX 50 companies over this time period, they would likely be feeling some disappointment and potentially envy. It is too risky to put all your eggs in one basket.
New Zealand is a lovely place to live, current economic pain aside. We have beautiful coastlines, unique culture and close-knit communities. For local connection, lifestyle, and raising wee ones, NZ is great. For your investments, it is a different story, they should be globally diversified across countries, industries and asset classes. This is the best way to insulate your investments from volatility, which we have seen in action over the past few years.
With the advent of PIE funds (tax-efficient global investment vehicles built for Kiwis – think KiwiSaver and the like), the tax impediments and trading hurdles from traditional investment are all but gone. It is easier than ever to trade on global markets; particularly so if you have a trusted fiduciary doing the legwork to make sure your strategy is the correct one for your lifestyle and goals.
That is not to say you should not invest in NZ markets; merely that you should spread your investments around (and therefore spread the risk). Think of it as a fleet of ships. Would you sink your life’s fortune into one and risk it all going down in one storm, or would you play it smart and spread the risk over various ships and ports?
Borders have been open a while now, and many are playing catch up on the quintessential OE (or moving permanently in hope of greener pastures). Savvy folks will be looking to become global investors rather than becoming global citizens; while you can’t put a price on memories, you can certainly put value on potential returns over time.
Think global for your investments… though if you are looking to get started or for a second opinion on your strategy, a local fiduciary who can sit down with you face-to-face is always a great port of call.
· Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 324.
· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
by Nick Stewart (CEO and Financial Adviser at Stewart Group)
[i] https://www.fidelity.com/learning-center/trading-investing/fundamental-analysis/understanding-market-capitalization#:~:text=Market%20cap%E2%80%94or%20capitalization%E2%80%94refers,DST%20Systems%2C%20Inc.
[ii] Dimensional Matrix Book 2023 HISTORICAL RETURNS DATA — AUSTRALIA AND NEW ZEALAND
[iii] Investment growth data is the cumulative total return for S&P 500, NASDAQ, Dow Jones (Global), S&P/ASX 300, S&P/ASX 200 and S&P/NZX 50 between January 1st, 2020 and September 22nd, 2023 and is based on the monthly return series, converted to NZD. Data source – Morning Star Direct
