4 Key Reasons
why you should be trading US stocks
4 Key Reasons
why you should be trading US stocks
Table of contents
Australia represents less than 2% of global share markets, meaning the vast majority of investment opportunities in world-leading companies are based outside domestic markets. While Australia boasts high levels of participation in the local share market suggesting a level of comfort and familiarity with Australian-based companies, according to the ASX, only 16% of investors hold international shares with potential international investors often citing a lack of knowledge, uncertainty about reliable sources of information, difficulties in identifying potential investment opportunities, and finding the right trading platform within the Australian market as key challenges in taking the leap to the international market.
4Key
The S&P/ASX200 has moved sideways for much of 2023 as investors tread water and have difficulty finding worthwhile trading opportunities in the local market. Part of this is a structural problem as several major publicly listed Australian companies have been sold or merged or are the subject of a takeover. A few examples of such companies include Afterpay, ALE Property Group, Ausnet Services, Automotive Holdings, Aveo, Blackmores, Bellamy’s, Bingo, Coca-Cola Amatil, Crown Resorts, Dulux, Galaxy Resources, Healthscope, Infigen Energy, CIMIC, Milton, MYOB, Nearmap, Oil Search, OZ Minerals, Pendal, Slater & Gordon, Spark Infrastructure, Sydney Airport, Tassal, Uniti Group, Village Roadshow, Vocus Communications, and Western Areas.
The performance of the three major US Indices (Dow, Nasdaq, S&P500) clearly illustrates the large potential gains that can be made in the US market. If investors limit themselves to the Australian market, they are missing out on an array of significant investment opportunities in well-known global companies like the big US tech stocks such as Apple, Microsoft, Google (Alphabet), Facebook (Meta), NVidia, etc.
There have been more than 160 takeovers of $A1 billion-plus companies since 2000; many of which were mainstays of the Australian market and companies that investors would have ridden the growth wave with.
Instead, the pool of available growth investments in Australia is shrinking and the capacity for Australian investors to take advantage of companies that have the potential to grow exponentially is being greatly reduced.
While at the time of writing Origin, Invocare, Costa, and United Malt are currently being considered for takeover.
Performance of Major US Indexes in 2023
Historically, US stocks have shown strong long-term growth potential and with time this leads to significant returns on investment. US equities have outperformed non-US equities since the 2007-09 global financial crisis, as evidenced by the Morningstar US Market Index gaining 12.0% annualised growth from 2010 to 2022, trouncing the Morningstar Global ex-US Index’s 4.4% growth, and with lower volatility too.
Source: Morningstar Direct. Individual market data cited is for the corresponding Morningstar Index in USD. Data as of Dec. 31, 2022.
Potential for Long-Term Growth
According to Bloomberg Intelligence, the generative Artificial Intelligence (‘AI’) market is set to grow 32.5% to be valued at $1.3 trillion within the next 10 years from a market size of just $40 billion last year in 2022. Companies like Amazon Web Services, Microsoft, Google, and Nvidia will likely be the biggest beneficiaries as enterprises continue to shift more of their workload to the public cloud.
Many US companies lead the way with technological advancements and innovation, providing unique investment opportunities in emerging industries. One example is the emergence of ChatGPT, which has spurred fresh excitement among investors seeking to tap into an emerging ‘game-changing’ sector.
Innovation
The US has one of the strongest economies in the world, and the US stock market is home to many of the world's leading companies. This means that investing in US stocks has some pretty sweet benefits for Aussies as it provides direct exposure to companies that offer growth potential and stability to an investment portfolio.
1. The Benefits of Investing in US Shares
The US stock market is also known for its high liquidity, making buying and selling shares relatively easy and quick, allowing investors to react to market changes promptly.
The US is a huge drawcard for leading business professionals. The cream of management talent in the world’s most vibrant capital market is a potent mix for investors looking to capitalise on new technologies and global business aptitude.
For many years the US Dollar has been viewed as the world’s ‘reserve’ currency. It has been the currency that investors flock to in times of turmoil, and the currency that benefits greatly from the size and strength of the world’s largest economy. On the other hand, the Australian economy is relatively small and is buffeted regularly by global demand for minerals and other raw materials. The local manufacturing industry is small by world standards and while Australia is home to several innovative companies, there aren’t many that can take on the world. It is for these factors, and more, that Australian investors should diversify their portfolio risk and gain exposure to the US and other global markets.
High Liquidity
Professional Management
Currency Strength
The size of the US market dominates many sectors at a global level. For example, to take advantage of the potential take-up of AI, there is no choice but to invest in the top US stocks. While the US economy is subject to large swings from time to time, its ability to weather global turmoil and bounce back is unparalleled.
Investing in defensive economic sectors can insulate against swings in the overall market, which can be done via individual stocks or theme-related Exchange Traded Funds. Utilities and healthcare stocks are examples of traditional defensive investments that may be relatively insulated from the economy's cyclical declines and varying consumer confidence.
Goldman's forecast is based on an estimate of approximately 15 million US adults receiving chronic weight loss management treatment using anti-obesity medications in 2030 out of the 105 million obese or overweight adults in the United States. This figure does not include individuals with diabetes.
Given this outlook, the VanEck Pharmaceutical ETF (PPH) could be an ideal way to benefit from the increasing adoption of weight-loss drugs. PPH incorporate a diverse range of companies and while Eli Lilly and Novo Nordisk are the two largest holdings in the fund, accounting for over 15% of its portfolio, other companies may well gain prominence in this space. Investing in an ETF would ensure growth across this sector is capitalised upon, rather than trying to pick which company might win the ‘race’.
Performance of US Defence Company Shares After Outbreaks of Wars
According to Ronald Epstein, an analyst at Bank of America, the war in the Middle East may force the US government to significantly increase defence industry investment with some defence stocks already seeing a rise in value. These stocks are often considered desirable investments due to their consistent, long-term contracts with the government.
However, choosing an investment in the defence sector can be challenging as no single contractor produces everything. An alternative would be to invest in a defence-related Exchange-Traded Fund (ETF) to gain exposure to a range of businesses associated with the defence industry.
The iShares U.S. Aerospace & Defence ETF (ITA) is the largest ETF focused on defence. It provides exposure to domestic United States aerospace and defence companies, as well as exposure to the commercial aerospace industry. As of early May 2023, the top five holdings in the iShares U.S. Aerospace & Defence ETF were: Raytheon Technologies, Lockheed Martin, Boeing, Northrop Grumman, and General Dynamics.
The war in Ukraine has already seen a significant boost in defence spending from the US and its allies, but the dynamics in the defence industry have undergone significant changes since Hamas attacked Israel on 7 October 2023.
The growing popularity of GLP-1 weight-loss medications such as Wegovy has been widely reported due to its effectiveness and possible health benefits. As a result, demand for these medications has skyrocketed. Analysts at Goldman Sachs predict that by 2030, the market for such products could reach $US100 billion, with Eli Lilly & Co. and Novo Nordisk A/S leading the way, while other major pharmaceutical companies like Pfizer and Amgen also developing their own brands of weight-loss treatments in an attempt to seize a share of this expanding market.
Defence
Healthcare
The size of the US market dominates many sectors at a global level. For example, to take advantage of the potential take-up of AI, there is no choice but to invest in the top US stocks. While the US economy is subject to large swings from time to time, its ability to weather global turmoil and bounce back is unparalleled.
Investing in defensive economic sectors can insulate against swings in the overall market, which can be done via individual stocks or theme-related Exchange Traded Funds. Utilities and healthcare stocks are examples of traditional defensive investments that may be relatively insulated from the economy's cyclical declines and varying consumer confidence.
2. Popular Investment Trends
Here are some other recent popular investment trends:
Renewable energy
Renewable energy companies gained popularity last year as Governments pushed hard to try and lower national carbon gas emissions. Fast forward 12 months and things are decidedly different with renewable energy shares in a slump, raw materials in oversupply and electric vehicles being stockpiled. Believers in the electrification revolution might well think this slump is short-term and the previous upward trend will recommence, presenting a buying opportunity for long-term investors.
The iShares Global Clean Energy ETF (ICLN) declined by 32.85% in 2023, while the S&P 500 has risen by 9.83% as of October 23. One reason behind the decline in renewable energy stocks is the substantial rise in interest rates. Building solar and wind farms or other green-energy infrastructure requires significant capital, and higher interest rates make it more expensive for these firms to borrow money while the returns are worse. Additionally, global and domestic inflation rates have led to an increase in raw material prices making it more costly to execute these projects.
Despite these short-term challenges, investment prospects for renewable energy remain significant due to the global shift away from fossil fuels. Although traditional forms of energy for electricity generation and transportation will continue to exist, renewables are increasingly becoming part of the mix and will be even more so in the future.
Hua Cheng, a portfolio manager at sustainable investment firm Mirova, noted the recent market correction makes the valuations of renewable energy firms more appealing, highlighting an untapped potential for growth in the industry that is not yet reflected in stock valuations.
Real-time global market news is a valuable resource for those who want to invest in the US market. It provides access to real-time updates on the latest developments in the US stock market including emerging investment opportunities and global events that may impact investments.
The heat map is a powerful tool for Australian retail investors who want to invest in the US market as it provides a visual representation of market trends and movements, simplifying complex data into an easy-to-understand format. The colour-coded system indicates the relative increase and decline of various sectors and markets, enabling investors to immediately identify high-potential investments and gauge thematic performance.
Investment Themes takes recent hot topics and groups related stocks together providing an overall performance snapshot of the sector. The Investment Themes featured on moomoo, for example, discuss topics such as ‘ChatGPT Investment Theme’ or ‘Lithium Battery Investment Theme’, to help investors discover popular market themes and potential investment opportunities that would otherwise be hidden.
Investment Themes provide a convenient and efficient way for Aussie investors to stay up to date on topical investments. In a time-poor world, it simplifies the process of researching and identifying investment opportunities linked to current events or market trends.
Instead of spending hours researching market data, investors can access the heat map and gain valuable information about market trends and movements within seconds.
By accessing real-time global market news, investors can identify market opportunities and react quickly to changes in the market and adjust their strategy accordingly providing them with a competitive advantage over other investors.
24/7 News Feed
Heat Map
Investment Themes
Australian investors often struggle to stay informed about emerging investment opportunities in the US market. However, there are tools available to simplify the research process and enable investors to identify promising investments with ease.
3. Finding the next Apple or Google
3. Finding the next Apple or Google
Market depth and course of sales
Institution Holding Data
Technical analysis tools
Analyst Ratings and price targets
Extended trading hours
Round-the-clock Trading Hours
Thanks to the continuous development of technology and the recent addition of AI tools, investors in Australia can stay ahead of emerging market trends, conduct thorough research and analysis on potential investments, and make informed investment decisions that align with their risk profile and investment objectives. And when the time is right, execute their orders—even during Australian daylight hours when the US markets are closed.
Extended trading hours allow for greater flexibility in managing investments without restriction, providing greater opportunities to act on emerging market trends and movements, and react quickly to global events that may impact investments.
Extended trading hours are particularly beneficial for Australian investors looking to invest in the US market due to the time difference between the two countries. As the US market operates during US business hours, it can be challenging for Australian investors to monitor investments during US hours.
With round-the-clock trading hours, Australian investors can trade before and after regular business hours, and also gain access to the overnight session which is traditionally only available for certain brokers, hedge funds and other financial institutions worldwide. This feature is especially beneficial for those who have other commitments during the day and cannot monitor investments during standard overnight trading hours, or those who want to get a head start during some black swan events. Through moomoo, investors can access overnight sessions easily to get more opportunities.
Market depth and course of sales provide investors with real-time information on a particular stock's supply and demand, enabling them to make informed investment decisions based on trading momentum.
Institution holding data captures the holdings and position changes of world-renowned institutions such as Berkshire Hathaway, ARK, Soros Capital, and many more. This data provides Australian investors with insights into the investment strategies of these institutions enabling them to see where the world's smartest money flows.
Fundamental analysis involves studying macro factors and company financial information such as balance sheets, industry trends, profits and earnings per share to gain a comprehensive understanding of a company.
Along with ratings, analysts disclose the target price they expect the share price to reach within a specified timeframe. This feature identifies key companies to consider investing in (or avoiding) and provides investors with a benchmark to measure the performance of their portfolio.
Analyst ratings offer a quick and easy way for investors to understand the overall sentiment surrounding a particular stock. Professional Investment Analysts use a rating system to indicate their preferred buy, hold, or sell recommendations for individual stocks, providing investors with an indication of the stock's potential performance. Until recently, these have been difficult to source without paying sizeable fees however many are now provided and collated free of charge.
Once investors have identified the right stock using fundamental analysis, timing becomes crucial. To enter the market at the appropriate time, investors often need to find a suitable entry signal. Identifying timing signals through technical analysis can provide the opportunity for more substantial returns and avoid buying at the wrong time.
Technical analysis concentrates on charts, patterns/correlation and statistical tools to help unlock market trends and provide qualitative data on individual stocks. With powerful trend line drawing tools, investors can draw over 40 different types of lines with a single click. Additionally, more than 100 technical indicators combine price action data and market sentiment to predict future trends and make more effective investment decisions.
Technical analysis concentrates on charts, patterns/correlation and statistical tools to help unlock market trends and provide qualitative data on individual stocks. With powerful trend line drawing tools, investors can draw over 40 different types of lines with a single click. Additionally, more than 100 technical indicators combine price action data and market sentiment to predict future trends and make more effective investment decisions.
Institution holding data empowers investors to find hidden gems that large institutional investors have access to. By tracking these institutions' investment changes, investors can identify high-potential opportunities, ultimately helping investors achieve their investment goals to secure their financial future.
Market depth provides investors with information on the number of buy and sell orders at different price levels, helping investors identify potential price movements to get the best price. By analysing market depth data, investors can determine the liquidity of a particular stock, assess market sentiment, and adjust their investment strategy accordingly.
Course of sales, on the other hand, provides investors with a comprehensive view of a particular stock's trading activity. It enables investors to track individual trades, the time of execution, and the volume traded, helping investors understand the level of market activity surrounding a particular stock and make informed investment decisions based on real-time information.
Through the moomoo app, Australian investors can quickly identify high-potential investments in the US market. However, discovering investment opportunities is only the first step as finding the right time to enter or exit a trade is just as important to maximise investment returns.
4. Powerful new tools
While there are plenty of choices on the market, moomoo has quickly cemented its place as one of the most popular trading platforms in Australia. Originating in Silicon Valley in the US, the moomoo app is feature-packed and easy to use.
The platform offers a straightforward account setup process, a range of pro-level charting tools and data, 24/5 round-the-clock US share trading, and the ability for investors to purchase US stocks from 1 share, making it accessible for those with limited capital.
Moomoo's simple and transparent brokerage fees help keep investing costs low.
Choose an online trading platform to buy US shares from Australia