This exacerbates a major dilemma. The rise of Magnificent Seven stocks and other technology companies has made the U.S. stock market so concentrated that even the most comprehensive U.S. stock index funds are no longer well diversified, as I pointed out in January. The rising stock prices of chip companies show that the problem extends far beyond the US stock market.
Take emerging market stocks. They are widely believed to operate on a different scale than so-called advanced or developed markets such as those in the United States, Western Europe and Japan. This was largely 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.
But today? True diversification is hard to find.
Some stock markets are not dominated by AI and chip companies. According to Bloomberg, Ghana’s GSE Composite Index and Nigeria’s NGX All Share Index are among the top five global performers this year, alongside South Korea’s Kospi Index and Taiwan’s Taiex Index.
But both Nigeria and, to a lesser extent, Ghana are oil producers, traders and refiners. So they benefit from the rising world oil prices triggered by the US-Israeli war with Iran, as do US fossil fuel companies. Seplat Energy in Nigeria and Ghana Oil have performed strongly – as have companies in the S&P 500 energy sector, which leads the entire S&P 500. Valero Energy, a refining company, and Halliburton, an energy services company, are American S&P 500 companies whose investors are making profits due to rising oil prices.
Whether because of AI or oil, no stock market is an island.
The view from Philadelphia
Indeed, what moves world markets to a notable extent are semiconductor companies, many of which are tracked by a venerable index based in 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, remains.