Why Buy US Stocks? The Long-Term Compounding Secret of the S&P 500: The Anchor Logic for Asset Allocation Among Hong Kong and Taiwan Investors

Investors who have been deeply involved in both Hong Kong and Taiwan stock markets have all pondered the same question: why do global funds seem to always find a home in the US market, regardless of whether the market is bullish or bearish? For investors based in Hong Kong and Taiwan, the answer to this question is largely encapsulated in the five characters of the S&P 500 index. It is not just a set of codes or a candlestick chart; it is the best lens through which to understand the proposition of buying US stocks. This article will deconstruct the underlying logic of the S&P 500's long-term allocation value from four dimensions: index mechanism, earnings quality, industry structure, and practical pathways. I. Self-Metabolism: An Evolving Index The most overlooked yet core advantage of the S&P 500 lies in its component stock adjustment mechanism. The Index Committee regularly reviews the operational status and market representation of the components, removing companies that have lost competitiveness or whose market capitalization has continuously shrunk, while also incorporating leaders from emerging industries. This means the S&P 500 is not a static list but a living entity that continuously updates itself. Looking back at history, the trajectory of this metabolism is clear: key companies from the industrial era gradually gave way to energy and consumer goods giants; after the rise of the internet wave, software and semiconductor companies were added in batches to the index; and in the current AI wave, representative companies of computing power infrastructure, cloud services, and related supply chains have successively gained a spot. Laggards are eliminated, and new champions are crowned; the index itself completes the relay of industrial change. In contrast, the Hong Kong market has long been dragged down by the weight of finance and real estate, while the Taiwan market is highly concentrated in the single semiconductor track; when the industry it belongs to enters a downturn, index-level recovery often takes longer. Compared to the more volatile Nasdaq index or the Dow Jones index, which has a relatively narrow industry coverage, the S&P 500 has achieved a rare balance between growth and balance. This structural difference is precisely why more and more investors from Hong Kong and Taiwan include the S&P 500 in their core holdings. II. Earnings and Buybacks: The Cash Flow Engine Behind Compounding The foundation of the S&P 500's long-term rise is always corporate earnings. The US stock market has a mature and unique shareholder return culture: listed companies, in addition to earnings growth, habitually reward shareholders by repurchasing and canceling large amounts of shares. The direct effect of buybacks is a reduction in the outstanding share capital, which passively increases earnings per share, meaning that the value of each share held by shareholders continues to grow even if the company's overall profit growth is moderate. Dividends, buybacks, and earnings reinvestment collectively form the three-in-one return system of US companies. For long-term holders, the advantage of this return method is that the compounding effect can be fully accumulated: dividends can be reinvested, and the increase in per-share value brought by buybacks snowballs over time. Although the Hong Kong and Taiwan markets are known for high dividends, many high-dividend companies have limited growth, and their dividends are more of a defensive tool to secure income rather than fuel for compounding. The profitability quality and buyback culture are two indispensable keywords for the S&P 500 to outperform most mature markets in the long run. III. Industry Breadth: Multiple Engines, Not a Single Core Driver Many investors have the impression of the S&P 500 as a technology stock index, which is a common misunderstanding. Admittedly, the weight of the Information Technology and Communication Services sectors has significantly increased over the past decade, but sectors such as healthcare, finance, industry, and consumer discretionary also hold a considerable share. This means the driving force behind the S&P 500's rise comes from multiple industrial curves, not a single technology narrative. The breadth of this industry holds two layers of significance in practice. First, when the technology sector undergoes a cyclical adjustment, defensive sectors such as healthcare, utilities, and consumer staples often provide a buffer, reducing the overall portfolio drawdown. Second, different sectors have varying sensitivities to interest rates, exchange rates, and economic cycles; a diversified structure ensures the index has engines to rely on across various macroeconomic environments. For investors whose holdings are concentrated in Hong Kong stock market finance and real estate or Taiwan stock market electronics, allocating to the S&P 500 is a form of industrial diversification, not merely a simple stacking of positions, but rather filling industrial gaps in the original portfolio. IV. Practical Path: How Hong Kong and Taiwan Funds Implement the Logic Having understood the allocation logic, there are three details that Hong Kong and Taiwan investors should note at the implementation level. The trend of global funds continuously flowing into core US assets via ETFs over the past years reflects this consensus on allocation, but discipline at the individual level is still required beneath the consensus. * Tool Selection: Direct investment in individual stocks requires high research capabilities, whereas ETFs tracking the S&P 500—whether listed in the US or corresponding products listed in local Hong Kong or Taiwan markets—offer a low-barrier, high-transparency participation method. When choosing, focus should be placed on expense ratios, tracking error, and trading currency. * Rhythm Management: Facing an index in a historically high range, a lump-sum heavy investment is not a rational choice. Entering through systematic investing or phased accumulation can smooth the purchase cost, transforming short-term timing pressure into long-term discipline. * Currency Perspective: Holding USD-denominated assets is itself a form of currency diversification. Fluctuations in the exchange rate between the New Taiwan Dollar and the Hong Kong Dollar against the USD create foreign exchange gains or losses during the holding period, which helps hedge regional risks associated with local currency assets in the long run, but one must also accept the reality of two-way currency volatility. V. Rational Expectation: Long-Termism Does Not Equal Blind Optimism It must be emphasized that the answer to why to buy US stocks is based on long-term logic, not speculation on short-term market movements. The S&P 500 has also experienced deep drawdowns, and the mean return over the next few years may shift downward when valuations are at historically high levels; changes in interest rate environments, geopolitics, and corporate earnings cycles can temporarily amplify volatility. For Hong Kong and Taiwan investors, a more prudent positioning is to treat the S&P 500 as one of the ballast stones in global asset allocation, complementing local market holdings, bonds, and cash assets, rather than expecting it to be a tool for short-term windfall profits. Conclusion The long-term value of an index is ultimately determined by the quality of the underlying companies and the mechanism design. The S&P 500 provides global investors with an efficient vehicle to participate in the transformation of the US economy and global industries through its metabolic component adjustment mechanism, a shareholder return culture characterized by buybacks and dividends, and its structural breadth covering multiple industries. For investors in Hong Kong and Taiwan stocks, incorporating the S&P 500 into a long-term allocation framework is essentially replacing reliance on a single market or a single industry with discipline and mechanism, which may be why buying US stocks is the most straightforward and time-tested answer.