U.S. and Far East Stocks Deserve More Attention!

Investors seeking to maximise returns from the stock-market may be better off placing greater emphasis on the outperformance of stocks belonging to the U.S. and other countries in the Global East.

The Challenge of Consistent Long-Term Returns

As value investors, we strive to identify opportunities that deliver consistent, long-term returns. Over the past five years, Indian stocks like HUL, HDFC Bank, Asian Paints, and P&G, widely regarded as multibaggers and consistent compounders, have struggled to meet expectations. Their five-year CAGR figures—5.74% for HUL, 7.56% for HDFC Bank, 8.93% for Asian Paints, and 6.34% for P&G paint a sobering picture. While these companies have delivered consistent earnings and dividends, the high premium at which they trade has significantly limited their ability to generate substantial wealth over this period.

Figure 1: CAGR calculations of different companies

The Outperformance of U.S. and Far East Stocks

In sharp contrast, U.S. and Far East stocks have delivered far superior returns for patient investors. Google has grown at an impressive CAGR of 20.88%, TSMC has outperformed with a stellar 27.22%, and even Berkshire Hathaway has delivered a steady 16.4% CAGR in the same 5 years period. When rupee depreciation is factored in a consistent tailwind of 3.35% CAGR over the past five years, the total returns climb further. Google’s total return rises to 24.23%, TSMC’s to an outstanding 30.57%, and Berkshire Hathaway’s to 19.75%. Toyota Motors, while relatively conservative, has still outperformed Indian peers with an 8.77% total return.

Valuation Premiums: A Risk for Indian Stocks

This performance disparity underscores several critical lessons. First, while Indian stocks have a strong reputation for resilience and steady returns, the high valuations demanded by the market often compress future returns. Companies like HUL and Asian Paints are undoubtedly excellent businesses, but the returns over the past five years highlight the risk of overpaying even for the best names.

On the other hand, U.S. and Far East stocks have provided a remarkable combination of growth and value. Google, driven by its dominance in digital advertising and investments in AI, and TSMC, a global leader in semiconductors, have tapped into transformative growth sectors such as artificial intelligence, 5G technology, and electric vehicles, positioning itself as a critical player in the supply chains of the world’s most innovative industries. Even Berkshire Hathaway, synonymous with value investing, has proven its ability to generate steady compounding returns over time.

The Currency Advantage: Rupee Depreciation Boosts Global Returns

Additionally, rupee depreciation plays a crucial role in boosting returns for Indian investors holding U.S. stocks. With the rupee weakening at an annualized rate of 3.35% against the dollar, global investments inherently gain an extra layer of returns. For instance, TSMC’s remarkable 27.22% CAGR becomes an even more compelling 30.57% when currency effects are included, a passive advantage unavailable to domestic investments.

Source: Google finance

Key Lessons for Value Investors

The results over the past five years are clear. While Indian stocks remain fundamentally sound, their returns have been hindered by their valuation premiums. In contrast, U.S. and Far East markets have delivered far superior performance, driven by undervalued opportunities in transformative industries and enhanced by favorable currency movements.

As investors, it is time to rethink portfolio strategies. Diversifying into U.S. and Far East stocks not only provides exposure to high-growth sectors like technology, semiconductors, and industrial innovation but also mitigates risks associated with overvaluation in Indian markets. The data makes it clear that the future of wealth creation lies in embracing global opportunities where value, growth, and innovation intersect.

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