Asian Investors Could Benefit From a Reduction in Home Bias
Although it is trending down, Asian pension funds continue to hold domestic equities larger than their respective market capitalisation levels in their portfolios. Adding global equities could improve investors’ long-term risk-return profiles in the five Asian markets that we examine — Hong Kong, Japan, Korea, Singapore and Taiwan. International diversification reduces risk much more than domestic diversification because domestic securities tend to be more highly correlated with each other given their exposure to country-specific shocks.
Home bias refers to the phenomenon of investors worldwide tending to disproportionately allocate their equity portfolios with domestic assets despite potential benefits from international diversification. While recently we have been seeing a downward trend in domestic equity holdings across Asia, there still remains a significant home bias in equity allocations in Asian markets. This exposes pension plans in Asia to higher risks as Asian equity markets often display higher volatilities and concentration risks relative to global equities.
Home biases can exist for a variety of reasons including investment barriers, transaction costs, corporate preferences and regulatory constraints. There are also currency risks to consider. However, there is no denying that there are significant benefits to expanding investments into global markets, including volatility reduction, return diversification and the ability to reduce concentration risk.
Over the long term, global equities tend to generate comparable or better risk-adjusted returns relative to those of Hong Kong, Japan, Korea, Singapore and Taiwan — the markets that we are considering for analysis in this paper — suggesting global investments could improve long-term risk-return profiles in these markets. This would imply that the trend toward global investments should (and likely will) continue across Asia.1
Before investing, consider the funds' investment objectives, risks, charges and expenses. To obtain a prospectus or summary prospectus which contains this and other information, call 1-800-997-7327, download a prospectus or summary prospectus now, or talk to your financial advisor. Read it carefully before investing.
Distributor: State Street Global Advisors Funds Distributors, LLC, member FINRA, SIPC, an indirect wholly owned subsidiary of State Street Corporation. References to State Street may include State Street Corporation and its affiliates. Certain State Street affiliates provide services and receive fees from the SSGA Funds.
THIS SITE IS INTENDED FOR U.S. INVESTORS ONLY.
No Offer/Local Restrictions
Nothing contained in or on the Site should be construed as a solicitation of an offer to buy or offer, or recommendation, to acquire or dispose of any security, commodity, investment or to engage in any other transaction. SSGA Intermediary Business offers a number of products and services designed specifically for various categories of investors. Not all products will be available to all investors. The information provided on the Site is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.
All persons and entities accessing the Site do so on their own initiative and are responsible for compliance with applicable local laws and regulations. The Site is not directed to any person in any jurisdiction where the publication or availability of the Site is prohibited, by reason of that person's nationality, residence or otherwise. Persons under these restrictions must not access the Site.
Information for Non-U.S. Investors:
The products and services described on this web site are intended to be made available only to persons in the United States, and the information on this web site is only for such persons. Nothing on this web site shall be considered a solicitation to buy or an offer to sell a security to any person in any jurisdiction where such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction.
Not FDIC Insured * No Bank Guarantee * May Lose Value