Since the mid-1980s, as equity investing has become increasingly global, countries have mattered less and less and sectors have mattered more and more.
The market turmoil of 2008 is the most recent demonstration: Among the indexes in the S&P Global 1200, the 2008 performance ranged from -38.5 percent for the S&P 500 to -45.4 percent for the S&P/TSX 60, with the overall S&P Global 1200 down 41.9 percent, all measured in U.S. dollars and excluding dividend reinvestment. Among sectors in the S&P Global 1200, health care and consumer staples were down 23.2 percent and 24.0 percent, respectively, while financials plunged 56 percent—a far wider range of results than among regions.
Ironically, the 1987 market crash was an early hint that nationality was becoming less important, when developed markets around the world collapsed in unison. This trend—increasing significance for sectors and decreasing importance of nationality—is well in place. The tech boom of the late 1990s and the subsequent bear market in 2000-2002 are other signs that sectors are now key factors in understanding the markets.
We can mark some other places where the trend demonstrated its staying power. Europe, with the introduction of the euro and the convergence of laws and securities regulation, is a leading example.
The euro helped shift the world to a focus on three principal currencies: the U.S. dollar, the euro and the yen. Even if one expands the picture to include the British pound and looks forward to a day when the Chinese renminbi is not encumbered with capital controls, the entire world will have no more than five principal currencies. Such a small number of currencies tends to limit the importance of nationality in investing.
One counterargument occasionally heard is the growing interest in emerging markets. This is certainly a very important aspect of globalization. However, most emerging market economies are focused on one or two sectors, and the sectors are often one of the best ways to understand trends in those markets, such as the close link of the Russian equity market with the broader energy sector.