Investing in equities is generally acknowledged as a crucial strategy for helping to build long-term wealth. However, for many investors, it feels a lot ‘safer’ and more comfortable investing in a portfolio of familiar domestic companies. But there are important reasons to look to offshore markets as Neville Giles explains.
Article One - 23 July 2025
As an investment destination, New Zealand has some quite attractive qualities that are prized by those seeking to invest their savings. It is globally renowned for its stable political environment, its financial markets are well-regulated, and there are a handful of well-run, high-performing companies. The New Zealand market is also very attractive for income seeking investors as many of the larger companies pay relatively high dividends. The temptation is to stick to the local market and avoid international shares which are perceived as “riskier”.
Home country bias is a common behavioural investing error where investors disproportionately allocate assets to domestic markets. This tendency stems from familiarity and perceived safety. However, it can lead to missed opportunities abroad.
There are compelling reasons for including global equities in an investment portfolio if investors are seeking to generate the highest possible return for the least possible risk. Global equity markets are broader, deeper and offer opportunities not available in the domestic market.
So rather than concentrating solely on New Zealand equities, investors should look offshore to help improve their investment outcomes. The rationale for investing into global equities can be grouped into four main ideas, as detailed below.
1. Diversification and Risk Reduction
One of the most powerful arguments for global investing is diversification. By spreading investments across different geographic regions, sectors, and currencies, investors can greatly reduce the volatility of their portfolio. There are occasionally periods when the local market has declined while global markets have increased in value.
For example, the New Zealand economy is heavily reliant on performance of the agricultural sector. Anything that impacts this industry (e.g. drought or disease), will likely have deleterious impact on the local economy while global markets will be unaffected. In such a scenario, having an investment in U.S. markets could offset local market declines as the prospects of a US company would not be impacted by a drought in New Zealand.
Part of the risk reduction relates to the currency aspect of global investing. During periods of market turmoil, a common reaction is for the value of the New Zealand dollar to fall. For example, during the global financial crisis, the NZ Dollar fell by 35% on a trade-weighted basis between September 2008 and March 2009. This greatly helped cushion share market declines for NZ based investors.
2. Broader Set of Investment Opportunities
The New Zealand's equity market is relatively small on a global scale, making up less than 0.1% of the global market capitalisation. Even if we include Australia as part of the domestic market, Australasia is only 1.7% of the global market indices.
International shares offer access to literally thousands of companies in a variety of countries, including economic powerhouses like the United States, China, Germany, and Japan. The MSCI World index, a commonly used global share market index, includes around 1,480 companies across 23 developed markets and so by diversifying internationally, investors can benefit from growth in different parts of the world and reduce the impact of any single market downturn.
In New Zealand, our local share market offers a relatively narrow selection of companies, dominated by a few large players in sectors such as utilities, real estate, and transport. Investors who focus solely on domestic equities may inadvertently concentrate their portfolio in a few sectors, increasing specific risks and limiting potential returns.
Global investing allows access to sectors under-represented or unavailable in New Zealand. Technology is the obvious example with global share market performance being led latterly by technology giants like Apple, Microsoft or Nvidia. There are simply no New Zealand peers to these extraordinarily successful companies. The same could be said for other sectors like luxury goods, automobiles, or pharmaceuticals. Investing globally also opens up exposure to fast-growing sectors such as biotech, clean energy, and semiconductors that are not present in the domestic market.
3. Long-Term Growth Potential
From a long-term perspective, global markets simply offer more opportunities for capital growth. With economies like the U.S., India, and China continuing to grow and innovate, the sheer scale and diversity of global companies offer the potential for higher returns than a market limited by size and sector concentration.
Historically, the MSCI World Index and S&P 500 have outperformed the NZX 50 over extended periods, especially when accounting for growth-oriented sectors and reinvested dividends. While past performance is not a guarantee of future results, the broader investment universe provides more avenues for compounding growth.
For example, in the last three years to 30 June 2025, the local market has delivered a reasonably respectable return of 5.9% per annum. However global markets, as measured by the MSCI World Index, delivered a whopping 19.3% p.a. return over the same period.
A large contributor to this factor is the previously mentioned tendency for NZ companies to maintain high dividend payout ratios. Monies distributed to investors as dividends are not then available to reinvest into the business to help boost future growth. Investing into a range of international companies will likely help generate the long-term capital growth required to preserve the real value of your savings.
4. Preserving Your Future Spending Power
The final rationale for investing globally relates to the very reason that we save in the first place. Savings are nothing more than future spending and therefore when we allocate some of our income into savings, we want to ensure that a dollar saved today will purchase a dollar’s worth of goods in the future. Given that a lot of our spending is on goods that are produced overseas, it is therefore prudent to have some of your savings overseas to help preserve the real value of those savings.
Filling your car with petrol is a perfect example. New Zealand imports virtually all of the petrol that fuels cars on our roads. Therefore, a substantial decline in the New Zealand dollar over the medium term will make the purchase of petrol much more expensive. This higher cost can effectively be hedged by having some offshore investments in your portfolio. These will rise in price (in NZD terms) when the New Zealand dollar declines ensuring your savings maintain their spending power.
In conclusion, New Zealand equities offer stability and familiarity, but they also come with concentration risks and limited sector diversity. Global equities, on the other hand, provide diversification, access to dynamic industries, and potential for higher long-term returns. By overcoming home country bias and embracing global markets, New Zealand investors can build more resilient and growth-oriented portfolios - essential for weathering market volatility and achieving long-term financial goals.
Neville Giles
Investment Advisor
+64 9 308 1450
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Information and Disclaimer: This article is for information purposes only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to your Financial Adviser. This article has been prepared from published information and other sources believed to be reliable, accurate and complete at the time of preparation. While every effort has been made to ensure accuracy neither JMI Wealth, nor any person involved in this publication, accept any liability for any errors or omission, nor accepts liability for loss or damage as a result of any reliance on the information presented.