That’s heightening a major dilemma. The ascendance of the Magnificent Seven stocks, and other tech companies, has made the U.S. stock market so highly concentrated that even the most comprehensive U.S. stock index funds are no longer well diversified, as I pointed out in January. The rising share prices of the chip companies show that the problem extends way beyond the U.S. stock market.
Take emerging market stocks. They are widely thought to operate in a different dimension from so-called advanced or developed markets, like those in the United States, Western Europe and Japan. That was still broadly true in the 1970s, when I was a student in Taiwan, and, to a lesser extent, in the 1980s and 1990s, when I reported from places like Beijing, Manila, Ho Chi Minh City and New Delhi.
Today, though? True diversification is hard to find.
Some stock markets aren’t dominated by A.I. and chip companies. Along with South Korea’s Kospi Index and Taiwan’s Taiex Index, the GSE Composite Index in Ghana and the NGX All Share Index in Nigeria are among the top five global performers this year, according to Bloomberg.
But both Nigeria and, to a smaller degree, Ghana are oil producers, distributors and refiners. So they are profiting from the rising world oil prices set off by the U.S.-Israeli war with Iran, much as U.S. fossil fuel companies are. Seplat Energy in Nigeria and Ghana Oil have had strong performances — and so have the companies in the S&P 500 energy sector, which leads the overall S&P 500. Valero Energy, a refiner, and Halliburton, an energy services company, are American S&P 500 companies whose investors are reaping profits because of soaring oil prices.
Whether it’s because of A.I. or oil, no stock market is an island.
The View From Philadelphia
In fact, what’s moving world markets to a remarkable degree are semiconductor companies, many of them tracked by a venerable index from Philadelphia, home of the oldest stock exchange in the United States. The Philadelphia Stock Exchange merged with the Nasdaq in 2007 and is a shadow of its former self, but its Philadelphia Semiconductor Index, known as the Sox index, continues.