Better geographic investing begins with an inclusive index

THE rapid globalisation of the past 20 years has blurred geographic boundaries in many aspects, including investing. When an asset manager picks a company, they are really investing in a basket of countries, since the firm is more likely than not operating across multiple countries.

Known as geographic investing, this requires asset managers to study the composition of the basket and the risks associated with each country before making decisions.

The tools at their disposal include country-level stock market indices. However, traditional indices such as Japan’s Nikkei and Germany’s DAX, or those compiled by global providers including MSCI, FTSE and S&P, comprise only stocks issued by firms domiciled in the country. Foreign firms are excluded even if they derive a substantial proportion of their revenue in said country.