Home Advantage: Will US companies’ high exposure to domestic consumers benefit stock market investors?

US companies’ high exposure to US consumers should be a relative advantage as the US economy continues to open while the rest of the world lags in vaccinations.

Investing in the US stock market is not without a reason. Home to some of the top global firms, the US stock market provides an opportunity for investors to diversify their portfolio geographically and reap the benefit of equities. With the opening up of the US economy, the corporate earnings are expected to rise further on the back of a strong domestic demand. If you as an investor in US stocks want to know the strength of the US consumer in reshaping the corporate wealth, here’s a snapshot.

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US companies’ high exposure to US consumers should be a relative advantage as the US economy continues to open while the rest of the world lags in vaccinations and the removal of pandemic restrictions. Those with high exposure to non-US consumers may struggle; a 30% share of revenue coming from foreign consumers could materially impact companies.

This finding is part of the Global Exposure Guide 2021 by Morgan Stanley Research. The report quantifies the revenue breakdown of companies in the US, Europe, Japan and EM to different geographical regions.

According to the report, the US has the highest domestic exposure within Developed Markets. The US companies derive 71% of their revenues domestically, 12% from Europe, 8% from Asia Pacific ex Japan (including 4% from China) and 4% from Latin America.

In the US, the largest sectors by market cap are Software, Media, Tech Hardware, Retailing, Pharma and Health Care.

Note: Sector weights as of May 27th 2021.
Source: MSCI, Morgan Stanley Research

While the first three sectors each have below average domestic revenue exposure, Retailing and Health Care are highly domestic with 86% and 84% of revenues derived from within the US.

Source: Morgan Stanley Research

Otherwise, some of the US sectors with the highest domestic exposure – including Utilities, Telecoms and Commercial Services are relatively small from a market cap perspective (all three account for just 5% of the market).

US companies are the most highly exposed to their domestic consumers globally, Japanese companies the least. US companies derive 53% of their revenues from consumers directly, making them the most exposed globally.

Japanese companies are the least exposed with 31% direct consumer exposure. Instead, Japanese companies are the most exposed to their corporate spending, which accounts for 67% of revenues. US companies by contrast derive only 37% of their revenues from corporates directly, making them the least exposed globally.

For US corporates, approximately 78% of the companies in our database incur 50% or more of their costs in the US. The database for the report covers over 3,300 companies globally, has revenue exposure data for 17 different regions and is compiled through an internal survey of 280 Morgan Stanley Research analysts.