- Wednesday, October 16, 2024
The MSCI World Index XX:990100, a popular barometer of developed-market stocks, is on the verge of reaching its highest level in over two years. As of Wednesday, the index, which comprises stocks from 23 developed-market countries, had gained 0.6% to reach 3,263.3 points. A closing above 3,248.12 would mark the first record close for the index since January 4, 2022, as reported by Dow Jones Market Data.
Despite its global moniker, the reality behind the index's performance lies in its heavy skew towards the United States. According to MSCI's fact sheet from January, U.S. stocks accounted for a substantial 70.1% of the index's weighting. In comparison, Japan, the second-largest representation in the index, stands at a mere 6.2%.
Japan, like the U.S., has also seen impressive stock market performance over the past year. In local currency terms, the main Japanese benchmark, the Nikkei 225 JP:NIK, has risen by 7.9% year-to-date. Furthermore, in 2023, it outperformed many international equity indexes with a surge of over 28%, surpassing even the S&P 500.
As a result of its remarkable progress after years of underperformance, speculation has emerged that the Japanese gauge could soon exceed its all-time high from December 1989 when it reached 38,195 points, according to FactSet data.
The World Index: A Mirror of the S&P 500
As the S&P 500 edges closer to the historic milestone of crossing the 5,000 mark, a quick look at the largest components of the world index reveals an uncanny resemblance to the S&P 500. This global equity benchmark owes much of its recent success to the U.S., particularly the "Magnificent Seven" megacap technology companies.
The Top Holdings
According to the fact sheet, Apple Inc. takes the lead as the world index's top holding, accounting for 4.7% of its weight. Following closely are Microsoft Corp., Nvidia Corp., Amazon.com Inc., and Meta Platforms Inc. These U.S. megacap companies, all part of the top 10 constituents, have played a significant role in the S&P 500's year-to-date gain and its recovery in 2023.
U.S. Dominance in Driving the World Index
Jason Hsu, Chief Investment Officer at Rayliant Global Advisors, affirms that it is the U.S. market that is powering the world index's growth. In an interview, Hsu identifies the "Magnificent Seven" as the driving force behind the U.S. market's strength.
Performance Comparison
Since the beginning of 2024, the world index has seen a 2.4% increase, while the S&P 500 has posted a gain of 4.6%. The Nasdaq Composite COMP, which also holds a substantial weight of U.S. megacap stocks, has climbed by 4.8%. However, it is worth noting that in 2023, the developed-market gauge experienced a remarkable surge of nearly 22%, marking its best calendar-year performance since 2019, according to FactSet data.
The world index reflects the dominance of U.S. companies and their role in shaping global equity markets. As the S&P 500 approaches the 5,000 mark, investors continue to closely monitor the contributions of these U.S. megacap technology companies to gauge the overall health and performance of the world index.
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