You hear a lot these days about how globalization is reversing. While some supply chains are onshoring and trade ties weakening, these trends are not reflected in public companies’ revenue sources. In fact, our annual study of Morningstar’s 48 single-country equity indexes shows growing interconnectedness between markets. This runs counter to the narrative that the pandemic and geopolitical tensions have undermined globalization.
As Morningstar senior analyst Gregg Wolper recently wrote, revenue exposure is “a different way” to assess “risk and opportunity.” Globalized revenue sources are important for investors and advisors to consider when constructing portfolios. When we aggregated corporate revenues for the constituents of Morningstar Global Markets Indexes, we found:
- Just 16 of 48 markets became more domestic in their revenue sources compared with last year. The Morningstar US Market Index, Morningstar Japan Index, and Morningstar China Index all increased their share of international revenues compared with last year.
- Many national equity markets are not very national. Western European markets are the world’s most globally connected.
- Emerging markets, especially in Asia and Eastern Europe, are the most domestic in their revenue sources. Tech-heavy Taiwan and Korea stand out as exceptions.
- Revenue sources help explain why correlations between developed markets have risen, while emerging markets tend to be less correlated with developed markets.
- Sector-level dynamics help explain market-level revenue trends. Technology companies tend to be more global, while the financial-services sector is generally more domestic.