In the first quarter of 2025, the amount of money South Koreans invested in U.S. stocks and ETFs reached an all-time high. Therefore, when investing in U.S. stocks, it is essential not to consider only the U.S. economy.
The Buffett Indicator (Total Market Cap/GDP) has lost some of its predictive power in recent years. The main reasons include:
1. Globalization Impact: The revenue of U.S.-listed companies heavily depends on overseas markets, while GDP only reflects the domestic economy, leading to a decoupling between the two.
2. Low-Interest Rate Environment: Prolonged low-interest rates have driven up stock market valuations, making historical averages no longer applicable.
3. Industry Structure Changes: The proportion of tech giants has surged. These companies are asset-light and highly profitable, resulting in market cap growth far exceeding that of traditional industries.
4. Financial Market Expansion: Factors like stock buybacks and the rise of private capital have inflated the stock market, causing the Buffett Indicator to remain high without triggering a market crash.
Therefore, while the Buffett Indicator still holds some reference value, it should not be used as a sole basis for decision-making.