Much has been written about the declining status of the US economy in the face of a rising China (and to a lesser extent much of the developing world, including China’s fellow ‘BRIC’ countries of Brazil, Russia and India).
It’s all true – well, most of it – when other countries are growing more quickly that you are, your relative importance starts to wane. Of course, the headline is never the full story.
Ignore the US at your peril
The US economy is still the bellwether, largely because it remains the largest consumer market on earth. While others are growing more quickly, the sheer size of the US means it continues to carry weight. After all, while China may be demanding ever more of our iron ore (and much of that iron is being made into Chinese infrastructure) it is still the American (and to a lesser extent, European) consumer that keeps China’s factories humming.
Of course, the US domestic economy is one part of the story, but for investors, the United States is home to the largest equity market in the world, split between the New York Stock Exchange and the tech-heavy Nasdaq .
What makes that market important is not just that it allows investors to access the US domestic economy, but that a vast proportion of the sales and profits reported by companies listed in the US are now coming from overseas. The NYSE and Nasdaq might be American markets, but they are increasingly the home of the world’s biggest and best companies.
Invest globally in just one market
Impressively, the latest data available from Standard & Poors suggests that 46% of sales made by companies in the S&P500 index were outside the US.
The Australian market is completely dominated by a handful of companies and even fewer industries. Indeed, the performance of the ASX 200 is essentially dictated by our major banks, the two large miners (BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO)) and Telstra (ASX: TLS). Throw in our supermarket giants and NewsCorp (ASX: NWS) and there’s not much room left for everyone else.
A wonderful collection of businesses
By contrast, the US bourses are home to industrial giants including General Electric (NYSE: GE), the two large US auto-makers, Oil behemoth Exxon Mobil (NYSE: XOM) and technology powerhouses Apple (Nasdaq: AAPL), Microsoft (Nasdaq: MSFT), Google (Nasdaq: GOOG) and Amazon.com (Nasdaq: AMZN). Throw in ubiquitous consumer brands Coca-Cola (NYSE: KO), Nike (NYSE: NKE), American Express (NYSE: AXP), McDonalds (NYSE: MCD) and Walt Disney (NYSE: DIS) and you’ve almost covered the waterfront.
One of the most frequent arguments you’ll hear from some commentators for overseas investing is that with only 2% of the world’s stockmarket value here in Australia, there’s 98% that Australian investors aren’t participating in. That’s true, and it is a shame that Australian investors don’t look further afield – especially given the similar regulatory regime in the US, and the familiarity we have with US-listed companies.
The biggest and best
There’s a simpler, more direct reason to invest in the US, though – many of the companies there are quite simply the best in the world in their category, and offer growth potential unmatched by a large swathe of the ASX-listed cohort… and at attractive prices.
To ignore those companies simply because they don’t appear on a local broker’s website is a shame – and can be an expensive oversight, especially when most investors don’t invest overseas simply due to a lack of awareness and understanding.
Here’s a quartet of companies all Australian investors should at least consider.
Apple (Nasdaq: AAPL)
Steve Jobs’ baby has taken something of a hammering in terms of share price since the US$700 levels of only a few months ago, but the company turned in another stellar quarter, selling almost 30% more iPhones and 50% more iPads than the previous year.
It may be facing some tough competition from Samsung and competitive hopefuls Microsoft and Blackberry-maker Research in Motion (Nasdaq: RIMM), but the company’s shares are cheap at these prices and it’s a brave person who’d bet against the power of the Apple brand.
Amazon.com (Nasdaq: AMZN)
The company that has almost single-handedly revolutionised retail has gone from a small online bookstore with high hopes to a market-leading and fast growing megastore offering everything from books to jewellery, home furnishings and digital media like apps, games, movies and, yes, books.
Amazon is still only a very small proportion of retail sales in the US, UK and Germany where it has an official presence, and is only scratching the surface in countries like Australia. The inherent benefits of online retail, and its immense scale will make Amazon very hard for others to match – or catch.
Berkshire Hathaway (NYSE: BRK-A, BRK-B)
The company run by the world’s most successful investor, Warren Buffett is a conglomerate of insurance companies, consumer brands and partial stakes in listed businesses like Coca-Cola and American Express.
Berkshire has a tremendous multi-decade track record of growth behind it, some wonderful businesses inside it, and at current prices, you’re getting Buffett’s brilliance for free. He won’t be running the shop forever, but with a board-authorised buyback program putting an effective floor under the price, the odds are keenly in favour of today’s buyer.
eBay (Nasdaq: EBAY)
Many of us will have bought something from eBay at some stage over the past decade. If your last purchase was years ago, it will likely have been a second hand item you bought through an eBay auction, but the business has branched out significantly since then.
Now more an online marketplace for small retailers (and single-person businesses) to quickly and easily sell new products, eBay sells a broad variety of items across many, many categories (I recently replaced some broken headphones by looking for the brand I wanted on eBay and had them in two days. The jewel in the crown isn’t eBay’s marketplace, though, but its own payment system, PayPal, which can be found on websites right across the internet.
In this rapidly globalising world, there are few better opportunities afforded by the internet than to invest in some of the best companies, no matter upon which exchanges they are listed.
You can get cheap brokerage rates (cheaper than trading in Australia if you look around) and can take a stake in some of the most wonderful and promising companies in the world. When you put it that way, we hope you’ll agree it’s an opportunity too good to pass up.
Attention: Investing in the US makes a lot of sense in addition to your Australian portfolio. Foolish, dividend loving investors and BusinessDay readers alike who are looking for Australian investing ideas can click here to request a Motley Fool free report entitled Secure Your Future with 3 Rock-Solid Dividend Stocks.
Scott Phillips is a Motley Fool investment analyst. He owns shares in Woolworths and Microsoft. You can follow Scott on Twitter @TMFGilla. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).