The Strategist

Rest of the World

The broad MSCI ACWI is dominated by US companies, particularly tech giants. The equity risk premium of European vs US stocks is much higher today than before the Great Financial Crisis. Within the global stock market, "the rest of the world" remains in focus at the moment.

Thomas Wille
Temps de lecture
10 minutes

Shortly after the legendary Black Monday on Wall Street in October 1987, MSCI created its flagship global equity index, the MSCI All Country World Index (MSCI ACWI), which integrated emerging markets and developed markets into one index. At the end of the 1980s, one market in particular was in focus alongside Wall Street – the Japanese stock market. The Nikkei 225 stood at nearly 39 000 points at the end of 1989. Today, more than 30 years later, it is at 27 700 points. The focus of 

the MSCI ACWI changed in the 1990s with the rapid rise of American technology companies, particularly during the dotcom bubble, and the beginning of the World Wide Web. Since the Great Financial Crisis of 2007-2008, the share of US companies of the total market capitalization of the MSCI ACWI has risen steadily from 40% to 60%. Market capitalisation has been heavily dominated in recent years by US big tech – Apple, Amazon, Alphabet (Google), Microsoft and Meta (Facebook) –which at times has accounted for over 25% of the market capitalisation of the S&P 500.

Equity risk premium in the ”Rest of the World“

With such dominance, it is not surprising that the MSCI World is split into the MSCI USA and MSCI World ex USA indices, the latter often referred to as the ”Rest of the World“. The equity risk premium on the S&P 500 has fallen below 200 basis points following the recent rally and rise in interest rates. 

The situation in the Rest of the World looks different. For example, the equity risk premium of the MSCI Euroland (which has always been higher than that of the S&P 500 over the last 15 years) is now at 550 basis points, which is almost 300 basis points higher than the difference between it and the equity risk premium of the S&P 500 before the Great Financial Crisis. Today, the equity risk premium of the S&P 500 is at about the same level as before the Great Financial Crisis. The relative attractiveness of the Rest of the World versus the US persists even after the rally of the last weeks. Analyses of European dividend yields and EV/EBITDA multiples come to similar conclusions.

Rest of the World in focus

Macroeconomic challenges continue in 2023, such as global economic growth below potential and restrictive monetary policy by major central banks (the Federal Reserve and European Central Bank). Within the equity market, we maintain our preference for Rest of the World stocks over the US equity market. At the sector level, we like the defensive pharmaceuticals sector. With gold having lost 100 US dollars per ounce in recent weeks, now is the time to selectively rebuild positions in case of further weakness.


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