From Morningstar: 2024-10-25 05:47:13

A recent study by Morningstar reveals that despite talks of globalization reversing, public companies are seeing an increase in global revenue sources. Out of 48 single-country equity indexes, only 16 markets have become more domestic in revenue sources. Western European markets are the most globally connected, while emerging markets tend to be more domestic.

According to Morningstar’s data, technology companies have the most global revenue sources, while financial services and utilities tend to be more domestic. The Morningstar US Market Index has seen an increase in technology weight, with companies like Nvidia contributing to international revenues. Across the globe, countries like Japan, Netherlands, Germany, Taiwan, Korea, and Canada have technology companies with high international revenues.

Despite a trend towards globalized revenue sources, India has seen a decrease in technology sector weight in its index. India’s IT outsourcing companies have lagged, while domestically oriented companies have performed well, leading to a rise in domestic revenue share. Sector dynamics play a role in the domestic orientation of many emerging markets, like Egypt, Peru, and Kuwait, which are dominated by financial services.

Increased interconnectedness of revenue sources among companies leads to rising correlations across developed equity markets. Markets in the US, Europe, and Japan are highly correlated with each other, while emerging markets are less tied to developed markets. Geopolitical risks make considering revenue sources crucial for investors, as a domestically oriented market may be less exposed to conflict or trade tensions.

Investors looking at asset allocation should consider the impact of globalized revenue sources on portfolio diversification. A global equity portfolio offers a wide array of opportunities, as leading companies in an investor’s home market may have significant international exposure. Revenue sources play a crucial role in understanding global market dynamics and potential investment opportunities.



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