Despite the benefits of diversification, institutional investors in most countries have a strong home bias, buying shares in companies that they know and ones that trade in their local markets, according to the latest report by Goldman Sach’s José Ursúa.
“We estimate that over the last decade, domestic holdings of broadly-defined domestic equity in developed markets (DM) have gone from around 81% to 76%, and from 90% to 88% in emerging markets (EM). This ‘home bias’ is visible not only in equities, but also in debt securities and other assets.”
Trade barriers are no longer a likely obstacle. Goldman notes that the behaviour continues despite decades of financial liberalisation, which have “removed obstacles to capital mobility around the world” while technology has enabled more efficient trading, and information flows have become “considerably more fluid.” Perhaps asset managers feel considerably less connected and engaged with companies outside their home market, an area which we are working hard to improve. Couple of charts below from the research caught our eye. Those may be useful in IR Strategy and institutional investor outreach planning.
Sources: Goldman Sachs, Financial Times, CityAM