Going Beyond Borders: 5 Reasons to Invest in Global Equities Today

If you're somebody who's interested in investing, you probably considered investing in global equities at some point in your investing career. While homegrown businesses might feel familiar, going global brings multiple advantages to your portfolio. It is one of the best moves that you can make when trying to build significant long-term wealth.

But why is going beyond borders so important? Here are some reasons to consider.

#1 Capture sector leaders abroad

Many people believe that the home market has all of the sector leaders in it already, and that there's no need to branch out to discover higher returns. That isn't always the case. In fact, in many situations, foreign companies have a significant advantage over domestic ones and have higher rates of return over the long term, sometimes for structural reasons.

This dates back to the work of David Ricardo in the 19th century, showing that some countries have a relative competitive advantage in the production of certain goods over others. This is still visible in the world today, whether it's China being superior for manufacturing, Japan being better at advanced electronics, or the U.S. and the U.K. exporting financial products.

#2 Shield against single economy shocks

If you've ever read a foreign finance newsletter, you'll know that single economy shocks are common. Something goes wrong domestically, and it has ripple effects that affect stock and equity prices significantly. This happened, for instance, during the 1990s and Black Monday in the UK, when there was an issue with the value of pound sterling.

When you go truly global, you isolate yourself against single-economy shocks. You can't protect yourself against global shocks that apply equally to everybody without diversifying into different assets. At least you can remove this level of risk from the table and hopefully get a higher risk-adjusted return.

#3 Tap into emerging market growth

Another major benefit of going beyond borders and investing overseas is that it allows you to tap into emerging market growth. Many of these economies are growing at double, triple, or even ten times the rate of advanced economies, meaning that there are far more opportunities.

This growth is occurring because of what economists call catch-up. Progress is happening faster in these countries because they're not having to reinvent the wheel. Instead, they're adopting technologies and practices from the West and implementing them in their own economies, allowing them to grow faster and create new markets.

#4 Gain built-in currency diversification

It's also a good idea to invest overseas because it gives you currency diversification. Even if the Japanese yen falls significantly, it's likely that the dollar or the Chinese yuan will rise. When this happens, losses in one area are offset by gains in another.

#5 Utilize structural valuation discrepancies

Lastly, it's a good idea to use structural valuation discrepancies. In some cases, investor sentiment can be poor about specific markets, even if the underlying fundamentals don't support it. Think about the Japanese market up until recently, or emerging markets since 2022. Both of these previously underperformed, and now they're overperforming.

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