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World markets open for investorsBy Bina Brown for CNN YOUR E-MAIL ALERTS(CNN) -- Global brand names like Coca-Cola and Nestle have been part of people's lives for decades, but it is only in the last few years that people living outside the United States or Switzerland have been able to invest easily in these companies. Substantial changes in the global environment, including financial deregulation and developments in computer technology, mean that world stock markets are literally at our fingertips. Clearly we live in a world where globalization reigns and the trend towards investing internationally is growing as individual and professional investors recognize they are missing out on large parts of world financial markets by keeping all their money at home. A well known indicator of the relative size of individual stock markets is the MSCI All Country World Index, which weights 49 countries based on the value of their stock markets. The weightings vary according to how the market is performing at any point in time, but roughly the index weights Japan at 11 percent, the U.S. at 45.5 percent, Australia at 2.3 percent, Indonesia at 0.13 percent, Singapore at 0.37 percent and Germany at 3.1 percent. As well as having different key growth industries such as information technology, health and pharmaceuticals, different countries offer household names like Nokia, Microsoft and Sony. Notwithstanding a few hiccups -- such as the 2000 "tech wreck" which caused a slump in the IT sector - the potentially higher returns and greater diversification in terms of asset classes, industries, economies and currencies inherent in international investing have provided good opportunities for investors over the past decade. Because different markets have different economic cycles it is increasingly commonplace for global fund managers to move money wherever they see the best prospects for returns. Two categoriesThe financial industry distinguishes between two main categories of international markets: developed and emerging. The two typically differ in size, liquidity, risk, volatility, accessibility, and the impact they have on the global economy though there are no hard and fast rules that differentiate the categories. The developed markets include the U.S., Japan, Western Europe, Canada, New Zealand, and Australia. They account for more than 80 percent of the market capitalization in the global equities market. The nations of Asia (excluding Japan), the Indian subcontinent, Eastern and Central Europe, the Middle East, Africa, and South America are generally considered emerging markets. But within each category, individual markets vary. For example, some emerging markets are more mature and stable than others, and tend to attract more investor attention. South Korea is one example. Singapore is another. According to Carl Delfeld, head of global investment advisory firm Chartwell Partners, most of the major global fund managers base their stock selection on benchmark indexes such as the MSCI. Because they need big-cap liquid stocks they have little choice but to take a top-down approach as they attempt to beat their benchmarks. Delfeld argues that individual investors who are not tied to country index weightings stand a better chance of outperforming the big fund managers. "If you want your global portfolio to outperform benchmarks in a big way, unshackle yourself from the country weightings. Look to the future and weight countries based on their growth potential, capital flows, prices and pace of market reforms," says Delfeld. Delfeld notes that the MSCI Europe, Australasia and Far East index contains 21 countries and excludes emerging-market countries. But 48 percent of the holdings are accounted for by two countries: Japan and the UK. Add in France and Germany and the percentage climbs to over 64 percent. The allocation to more dynamic countries such as Ireland and Austria is 0.94 percent and 0.40 percent respectively. "It makes little sense to me to have Japan, the UK, France and Germany account for 64 percent of your investments in global markets ... do some independent thinking. If the goal for your portfolio is long-term appreciation, India, Ireland, eastern Europe or greater China should have larger allocations than the U.K. or France," says Delfeld. Including emerging-market countries will almost certainly make returns more volatile. But, as billionaire investor Warren Buffett said in one of his annual reports, "I would rather have a lumpy 15 percent than a flat 12 percent". 
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