The Sharesies Guide to Investing by Brooke Roberts & Leighton Roberts and Sonya Williams

Author:Brooke Roberts & Leighton Roberts and Sonya Williams
Language: eng
Format: epub
Publisher: Allen & Unwin
Published: 2022-12-13T00:00:00+00:00

Big developed economies

A developed economy is an economy where most of the basics are taken care of. Laws and contracts are enforced, so people can open businesses with more certainty. Important infrastructure like electricity is in place, and it’s reliable — when you flick the light switch, the lights go on, every time. People are generally well educated, so if you want to hire someone, you can rely on them having basic skills like reading and writing.

On top of this, some of the developed economies are really large. Think of places like the USA, Japan and Germany. They’re highly populated, and they produce really valuable goods and services that they sell to the whole world. The US is the world’s biggest equity market by a significant margin — it is 56 per cent of the world’s free-float market capitalisation11 (that’s the total value of all shares on issue around the world). Japan, at 7.4 per cent, is a distant second.

Toyota Motor Corporation (NYSE:TM) is based in Japan. Toyota factories are worldwide, but whenever a car rolls off the line and gets sold, the profits flow back to Japan. Same goes for iPhones (US) and even Best Foods Mayonnaise (manufactured by Unilever plc NYSE:UL), a British/Dutch company).

The benefit of investing in these really big developed economies is that you get a piece of the richest companies in the world, with access to consumers who often have comparatively large amounts of disposable income to spend. What’s more, the big players in these economies sell things all over the world. This helps insulate them from local economic issues because there’s money coming in from all over the place.

If there’s a downturn in demand for Toyota cars in Japan, the company will probably be supported by ongoing orders from the United States or Europe.

It’s relatively easy for investors in our part of the world to invest in these economies. As you already know, you can buy shares in lots of US companies through Sharesies, or other investing platforms. For example, an ETF like Vanguard’s Large Cap Index Fund (NYSEARCA:VV) will instantly put you into a basket of big-name US companies. Smartshares’ Japan Equities ESG ETF (NZX:JPN) will put you in 300 companies in the Japanese market.

The potential downside in focusing on these big economies when it comes to investing is there can be less room for growth — you’re more likely to hear shares being described as ‘over-valued’ in the bigger markets. People sometimes also complain that developed markets are ‘overcrowded’.

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