HSBC says investors should look at where companies make their revenue

Equity investors who look at indexes based on revenue rather than domicile will discover an entirely different investment universe, according to HSBC.

Global indexes are based on domicile. The MSCI U.K. Index, for example, is composed of companies from the U.K. But as two-thirds of their revenue comes from overseas markets, the index isn't really providing investors with exposure to the U.K., HSBC analysts wrote in a new report.

All the companies in the Dow Jones Industrial Average DJIA, +0.64% are based in the U.S., but more than 40% of the overall revenue is derived from outside the U.S.


See also: Why Marc Faber is calling for an ugly stock-market crash—again

At the same time, companies are inconsistent in their disclosures of where they generate their revenue and accounting rules don’t help. Combined, those factors mean that understanding where revenue is made is a “fertile ground to add value,” they wrote.

Read: Why even the best investing advice may be wrong

“By looking beyond locally listed stocks incorporated in the country benchmark, analysts can broaden the universe of potential investments,” said the report. “This often gives exposure to harder-to-access sectors and countries.” 

The report analyzes 29 major developed and emerging country indexes and outlines ways to play both GDP and currency trends. It found that European companies are the most global, generating almost half their revenue overseas. At a time when global economic growth rates are weak and risk perception high, that has led many European indexes to underperform. Europe’s big exposure to emerging markets (EM) on the other hand, has been a positive, as EM markets have stabilized. 


Click Here To Register For Free Trial Services OR Give A Missed Call : +6531581402 Follow Us On Twitter : www.twitter.com/epicresearchsg Like Us On Facebook : www.facebook.com/EpicResearchSingapore Need Any Assistance Feel Free To Mail Us at : info@epicresearch.sg