Measured by market value, the global equity market is highly concentrated. The United States has represented more than half for an extended period and more than that recently. The remainder is divided among Japan, the United Kingdom, continental Europe, China, India, Taiwan, Korea and others, and most individual countries account for single-digit shares. These figures are updated quarterly and freely available. They constitute a neutral reference point, since holdings absent any active judgement would resemble that distribution. Actual holdings look nothing like it. Survey data from many countries shows domestic equity holdings far exceeding the country's weight in global market value. The effect is most extreme in countries with small weights.
Some markets represent less than two per cent of global capitalisation while their residents hold more than sixty per cent of their equity domestically. The pattern appears in essentially every country where data exists. The first cause is asymmetric information access. Domestic company news appears daily, the language is shared, accounting conventions are familiar, and management statements can be understood directly. These conditions lower research costs and produce a sense of superior understanding. The familiarity effect operates directly here, and its force in cross-border comparison is considerably greater than within a single market. The second cause is institutional.
Pension systems, tax-advantaged accounts and insurance products in many countries are designed with a domestic tilt, and some carry statutory holding requirements. Such arrangements usually originated in capital controls or industrial policy. Their effects persist long after the original restrictions were lifted, since investment habits and product structures have already formed around them. The third cause is currency. Holding foreign assets means accepting exchange rate movement, which is a genuine risk for anybody whose living costs are measured in domestic currency. The reasonable approach is to assess whether that risk is worth carrying and whether it should be hedged.
What most investors do instead is avoid it entirely, which is a decision reached without any calculation having been performed. The consequence of the gap concentrates in diversification. A single country's equity market usually carries pronounced sector skew. Some are dominated by financials and resources, others by technology manufacturing, others by domestic services. Concentrating domestically means betting simultaneously on one country's economy, its currency, its industrial structure and its institutional quality, and those tend to deteriorate together under stress. More significant still is how domestic bias compounds with the concentration of human capital. Most people earn their income from the domestic economy, own property there, and hold retirement entitlements denominated in local currency.
Adding financial assets concentrated in the same place produces total exposure well above what the portfolio's own figures suggest. Adjustment does not require anything extreme. Moving from heavily concentrated domestic holdings to some intermediate point between that and global market weights captures most of the available diversification benefit. The real issue is not which proportion to choose. It is that most people never treated the proportion as something requiring a decision, so it arrived as a default rather than as a choice. One practical note concerns how to measure the current position.
Many investors hold funds whose geographic composition they have never examined, and a portfolio described as globally diversified may carry a domestic weight well above what its owner assumes. The information sits in monthly fund documents. Establishing the actual figure takes very little time and is a necessary step before any discussion of what it ought to be. One reasonable objection deserves acknowledgement. Global market weights are themselves an outcome of past performance rather than a forecast, so matching them is not obviously correct either. What the reference point provides is a neutral starting position that requires no view about the future. Departing from it is entirely legitimate, and the departure is better made deliberately, with a reason attached, than inherited by default from where somebody happened to open an account.