The United States dominates the global stock market. That’s not an opinion—it’s a fact backed by weightings in virtually every major global equity index.
Take the MSCI All Country World Index (ACWI), for example: as of mid-2025, the US makes up around 61% of its total market capitalisation. That’s more than all of Europe, Japan, China, and emerging markets combined.
But with dominance comes a warning. The US stock market is historically expensive. On some valuation metrics—like the cyclically adjusted price-to-earnings (CAPE) ratio—it remains near levels only seen in the dot-com era.
Investors looking to diversify—or even bet against this concentration—often consider cheaper international markets. Yet before shifting capital abroad, it’s essential to understand what you’re actually buying.
Because when you buy an index, you’re not just buying a country—you’re buying sectors. And every region tells a very different story.
United States: The Tech Titan
Let’s start with the obvious. The US stock market is tech-heavy—extremely so.
As of 2025, around 30% of the S&P 500 is composed of information technology stocks, with another 15% or so made up of communication services and consumer discretionary companies, many of which are tech-adjacent (think Amazon or Alphabet). Nvidia, Apple, Microsoft, and Meta dominate the leaderboard.
This tech tilt explains both the S&P 500’s astonishing performance over the past decade and its elevated valuations.
It’s also what makes the US market so sensitive to interest rates and future growth assumptions. If you want to own the companies building the digital world—AI, cloud, semiconductors, and software—then the US is the purest play.
But it’s also a concentrated one. As of this writing, just seven companies account for over 30% of the S&P 500’s total market cap. That’s less diversification than it might appear at first glance.
Europe: Banking and Industry
Move across the Atlantic and the picture changes dramatically. Europe, particularly the Eurozone and UK markets, is dominated not by growth-oriented tech but by more traditional, cyclical sectors: financials, industrials, and consumer staples.
The MSCI Europe Index, for instance, has around 17% in financials and just 7% in information technology.
France and Germany lean heavily into luxury goods (LVMH, Hermès), autos (Volkswagen, BMW), and industrial engineering (Siemens, Schneider Electric).
The UK, through the FTSE 100, skews even further toward banks, miners, and oil majors—Barclays, HSBC, BP, Shell, and Glencore.
That’s one reason European markets have lagged the US in recent years—they lack the high-growth tech exposure. But that might also be why they look cheap. The Euro Stoxx 50 trades at a significantly lower P/E ratio than the S&P 500, and dividend yields are generally higher.
If you’re buying Europe, you’re getting cyclical value, global consumer brands, and exposure to industries sensitive to interest rates and global demand. You’re not buying innovation or high-margin tech.
Japan: Machinery, Automobiles, and a Little Surprise
Japan is often described as a “value trap,” and while that label may be outdated, it reflects an important truth: Japan’s stock market looks inexpensive for a reason.
The country’s flagship Nikkei 225 and the broader Topix index are packed with industrials, automotive firms, and electronics manufacturers—companies like Toyota, Hitachi, and Mitsubishi Electric.
Tech does play a role here, but it’s hardware-heavy, not software-driven. Semiconductor equipment and robotics are strengths—Japan is a global leader in automation—but you won’t find many consumer-facing tech giants.
What’s changed recently is governance. Under pressure from the Tokyo Stock Exchange and foreign investors, Japanese companies have begun to unlock shareholder value by returning more capital, cleaning up cross-holdings, and raising dividend payouts. The result: Japanese equities have staged a comeback, reaching multi-decade highs in 2024.
Still, understand what you’re buying. Japan offers exposure to manufacturing, automation, and capital goods, not AI or cloud computing.
Emerging Markets: Commodities and Consumption
Emerging markets are often painted with a single brush, but they’re far from homogenous. China, India, Brazil, and others each have their own sectoral makeup. Still, there are some broad themes worth noting.
First, financials and energy dominate many emerging market indices.
In Brazil, the index is built around Petrobras (oil) and major banks like Itau. In Russia (previously investable), it was all about oil and gas. In South Africa, mining is king.
China was once tech-heavy, thanks to giants like Alibaba and Tencent, but tighter regulation has reduced the dominance of these firms. As a result, state-owned enterprises and banks now play a bigger role.
India is an interesting outlier. While financials remain large, India’s market has a rising tilt toward consumer goods, healthcare, and IT services—companies like Infosys and Tata Consultancy Services. It’s seen as a domestic growth story, increasingly favoured by global investors seeking an alternative to China.
In general, emerging markets give you exposure to:
- Commodity cycles
- Urbanisation and rising middle-class consumption
- State-influenced sectors (particularly in China)
They can be volatile, but they are cheap, with valuations far below US counterparts.
Canada and Australia: Resource Heavyweights
Both Canada and Australia are often overlooked, but they play an important role in a diversified portfolio—especially if you believe commodities are entering a new supercycle.
Canada’s TSX is built on banks, energy, and materials. The “Big Five” banks dominate financial services, while oil sands, pipelines, and mining firms make up a huge portion of the index.
Australia is similar. The ASX 200 is disproportionately influenced by BHP, Rio Tinto, and Commonwealth Bank. Its economy is tightly linked to Chinese demand for iron ore and other raw materials.
These markets rarely offer big tech exposure, but they do deliver:
- High dividend yields
- Inflation sensitivity via commodities
- Exposure to the global demand cycle
They can be a useful counterbalance to US tech-heavy portfolios.
So… Should You “Buy the World”?
Investors chasing geographic diversification often assume they’re reducing risk. But if you’re not paying attention to sector exposure, you may not be as diversified as you think.
For example:
- Buying the US = high exposure to growth tech
- Buying Europe = banks, energy, and cyclicals
- Buying Japan = capital goods and automation
- Buying Emerging Markets = commodity exposure and financials
In other words, country investing is sector investing in disguise. Valuations alone don’t tell the full story. A low P/E might reflect a market full of slow-growing utilities or banks. A high P/E might reflect dominance by world-changing tech.
This is especially important when using low-cost global ETFs. Most “global” equity funds are overwhelmingly tilted toward US megacaps. Even buying an emerging markets ETF might give you more exposure to Chinese state-owned banks than to dynamic Indian tech companies.
Know What You Own
Valuation-minded investors might look at the lofty multiples in US stocks and be tempted to diversify into cheaper international markets. That can be smart—but only if you understand what you’re really buying.
Regional equity indices reflect the shape of national economies and the priorities of corporate ecosystems. In the US, that’s tech and software. In Europe, it’s banking and consumer goods. In Japan, it’s manufacturing. In emerging markets, it’s energy and financials.
So next time you look at a regional ETF, ask not just where it invests—but what sectors it gives you exposure to.
Carl Roberts, Director
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Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
