Why Should We Invest in US Stock Market vs Malaysia Stock Market

One of the key success factors in investing is to look for investments that can generate us a better Return of Investment (ROI) with the capital that we have.

Here are 4 reasons why I invest in the US Stock Market since 2010.

1. Better ROI

One of the reason why I invest in the US Stock Market is because it gives me a better return over the KLSE.

Comparing between the performance of KLSE and the Dow Jones or S&P 500 in the US Stock Market, we can see a huge difference in term of performance.

Let's look at the performance comparison of SPX (representing Dow Jones Industrial Avg ETF) vs KLSE.

SPX has gone up to about 118% for the past 7 years, while KLSE has dropped by 13%.

This is equivalent to about 11.4% CAGR for the US stocks market 😀, while for KLSE is actually CAGR of -2.2% 😓

In fact, if I were to put money in Fixed Deposit, maybe I can be better off for the past 7 years over KLSE?

2. Better Diversification for Lower Risk

It is important to diversify our portfolio so that we can have a better risk management.

By allocating our money in a multiple geographic regions will actually reduces our investment risk and increases our investment returns.

Do not put all your eggs in one basket.

One of the risk measure of of a geographic region is called Country Risk Premium (CRP) or to use Country Equity Risk Premium.

Country risk encompasses numerous factors, including:

Political instability;
Economic risks such as recessionary conditions, higher inflation etc.;
Sovereign debt burden and default probability;
Currency fluctuations;
Adverse government regulations (such as expropriation or currency controls).

Developing market generally has higher CRP over developed nations.

We know that US is a developed nation, and Malaysia is still a developing country.

Let's look at some of the Country Equity Risk Premium below as per Dec 2020 from Visual Capitalist.

Note that, the higher number, means a higher risk.

United States - 5.2%

Canada - 5.2%

Australia - 5.2%

Singapore - 5.2%

UK - 6.0%

South Korea - 6.0%

Taiwan - 6.1%

Hong Kong - 6.1%

China - 6.3%

Japan - 6.3%

Malaysia - 7.0%

Thailand - 7.6%

India - 8.5%

Brazil - 9.6%

North Korea - 22.9%

Argentina - 22.9% (Economic Crises)

Liberia - 22.9%

Yemen - 27.1%

Venezuela - 27.1% (Hyperinflation issue)

Sudan - 27.1% (Economic Crises)

Referring to the Country Equity Risk Premium above, we can see that United States, China, Singapore are having lower or better country equity risk premium over Malaysia.

As such, it makes sense to allocate some of my capital to country like US and China to reduce my risk exposure in Malaysia, even though it is my home country.

Also as a side note, we should avoid countries like Argentina, Venezuela or Sudan at all cost.

Note that all these countries are facing critical economic crises and we should not touch them at all.

Do check if any of your portfolio are having exposure to these markets, and you may want to revisit it.

Maybe some of your unit trust funds are having exposure or allocation in these unstable and volatile market.

3. More Strong Businesses with Established Brands

We all know that US is a great nation that has been creating multiple successful businesses that impacts all over the world.

Look at the list below, and let me know you have personally used or consumed how many of the brands below:

Coca-Cola
KFC & Pizza Hut (Yum! Brands)
Domino Pizza
Starbucks
Pepsi
McDonalds
Nike
Visa
Mastercard
Facebook
Microsoft
Google (Alphabet)
Amazon
Apple
Netflix
Adobe
P & G
Unilever
Colgate
Shopify
Walt Disney
Salesforce

Now, maybe some of you would say, hey, I never drink Coke or Pepsi, but do you know that these companies also sell other products besides soft drinks?

Coca-Cola also sells Dasani mineral water.

Pepsi also sells Quaker Oats.

Are you surprised?

I am sure you are familiar with at least 80% of the list above.

The brands has global impacts since decades ago.

After many rounds of global economic and political issues, and even Covid-19 pandemic, most of the brands above are still standing strong, if not better.

A successful investor always invest in something that he/she is familiar with.

If you have been using that products for many years, ask yourself this question, will you continue to use that product?

If the answer is a resounding yes, it is one of the hint that it is a good product, and that products will continue to generate sales and profit years after years.

Which is also why I never invest in oil and gas, because I am not familiar with that industry and nowadays I take LRT more than I drive. With Covid-19, well I don't even need to travel.

And with more companies are planning for more of their employees to work from home, well, you know the impact.

Coming from a Electrical Engineering background, I have always have affinity towards technology related stuffs, because that is what I do and use every day.

Because of that, I will tend to invest more in those areas, because those are the areas where I have a better circle of competence.

Branding is very important.

A product that has strong brands will normally be able to command a sustainable selling price of its products.

When was the last time you see an Apple product like iPhone has a great 30% discount?

Due to this, we can know that a company will be able to maintain its profit margin and also withstand any competition for years to come.

4. Promising Growth Potential

One of the reason we invest is to grow our capital, and also to get consistent and growing income, e,g. through dividend or premium.

For that to happen, we need to ensure that those companies are investing in growth, e.g. through R & D or a sustainable growth plan.

Are those companies creating new breakthrough products that has great demand?
Are those companies penetrating new market?
Are those companies expanding in term of stores location?
Are those companies investing in new technologies and innovation what will enhanced it's product, that eventually drive more sales/revenue?
Are those companies doing any activities to expands it's customer base?

If you can answer most of the answer above as yes, you can also know that there is a potential of growth.

Let's look at some growth potential of the following business:

Amazon / Google / Microsoft - they are growing their cloud business with exponential rate
Netflix / Walt Disney / Apple / Google / Amazon / Roku - more people are moving to video streaming
Facebook / Google / Shopify / Amazon / Salesforce - more people are doing ecommerce and digital marketing (ads)
Visa / Mastercard / Paypal / Square - more online transactions are being done for security and convenience
Nike / Apple - growth in more market with the rising of middle class earners
Starbucks / McDonalds / KFC (Yum Brands) - more stores location
Google - Self - Driving Car technology
Facebook - VE Technology
Google / Amazon - home smart speaker

With the rise of mobile first, most of the businesses above will benefits as well.

Conclusion

With a better ROI, lower country risk, strong businesses with established brands and huge growth potential, it makes sense to allocate some exposure of my portfolio to the US Stock Market.

What about you?

Do you plan to invest in the US Stock Market soon?

Let us know what you think in the comment below.

Happy Investing! 😉

For Fun:

Some videos about Apple: