For investors in Hong Kong and Taiwan, "local preference" is almost a default setting ingrained in trading habits: HKD assets revolve around the Hang Seng Index, while TWD assets are highly tied to the Taiwanese stock electronics chain. This familiarity brings convenience but also hides a hidden risk—when global industry tides shift, the index structure of a single market often reacts slowly. The S&P 500 across the ocean offers a completely different answer: it is not a static list of stocks, but an asset allocation system that "automatically refreshes." This is precisely what makes the old question, "Why buy US stocks," the most worthy topic for re-answering today.
I. S&P 500: A Continuously Self-Updating "Economic Specimen"
The S&P 500 Index was established in 1957, covering about five hundred large-cap companies in the US, and has long been regarded as a microcosm of the American economy. Its true value lies not in the list itself, but in the mechanism that maintains it: the S&P Index Committee regularly reviews the components. Companies whose performance continuously deteriorates, whose market capitalization shrinks significantly, or which are delisted after acquisition are removed, while representatives of emerging industries are incorporated as they rise. Component adjustments happen dozens of times each year. The operational logic of the Dow Jones Industrial Average is similar—in November 2024, Nvidia replacing Intel in the DJIA was a landmark moment marking the AI computing wave being "recorded" by the index system.
For long-term investors, this means that buying an ETF tracking the S&P 500 is essentially delegating stock selection to a standardized, impersonal screening system: it does not require you to predict market trends, but it continuously shifts the portfolio's focus from declining industries to growing ones. Over the past few decades, the weight of steel and traditional retail has gradually yielded to software, chips, and biomedicine, a process of "industrial migration" that requires no action from the investor.
II. Compared to Hong Kong and Taiwan: What are the Index Structures of the Two Regions Lacking?
Hong Kong Stocks: Overweight in Finance and Old Economy, Insufficient Industry Depth
The Hang Seng Index has long been dominated by financial and real estate stocks. Although it has incorporated several new economy and Cayman-listed companies in recent years, improving the weight structure, it remains heavily weighted toward a few leaders. More critically, the market itself has limited industry depth—it lacks world-class companies in sectors such as semiconductor equipment, original pharmaceuticals, and aerospace locally, making it difficult for investors to achieve comprehensive coverage of the global industry chain within a single market.
Taiwan Stocks: The Double-Edged Sword of Semiconductor Dominance
In the Taiwan Weighted Index, TSMC has consistently held a weight around 30%, and the electronics industry collectively accounts for a higher proportion. When the semiconductor cycle is up, this is a source of enviable excess returns; but once the industry cycle reverses, there is almost no hedge within the index. Taiwanese stocks also lack representative companies from diversified sectors such as consumption, healthcare, and energy.
The US stock market structure perfectly complements these shortcomings. The S&P 500 spans eleven major sectors, including information technology, healthcare, finance, discretionary consumer, industrials, energy, and consumer staples, so the rise or fall of any single industry cannot independently determine the fate of the index. For investors already deeply invested in the Hong Kong and Taiwan markets, this structural difference is a source of diversification value.
III. The Three Layers of Dividend from the "Automatic Refresh" Mechanism
* Growth Capture Dividend: Companies like Apple, Tesla, and Nvidia are included in the index only after they have grown into giants. Index investors share subsequent growth with relatively moderate valuations, without having to bear the high failure rate of betting on startups;
Risk Clearance Dividend: Declining companies are passively removed from the portfolio, eliminating the need for investors to constantly agonize over whether to cut losses, thereby avoiding the most common long-term profit killer: emotional holding;Compounding Sustainability Dividend: The index rules are transparent and long-lasting. Combined with dividend reinvestment, the compounding effect of annualized returns continues to roll across economic cycles. This is the underlying reason why the S&P 500 has maintained an approximate ten percent long-term annualized return, outperforming most active strategies.IV. Implementation Paths and Three Key Considerations for Hong Kong and Taiwan Investors
There are three common ways for funds denominated in HKD or TWD to allocate to the S&P 500: First, directly purchasing low-fee, high-liquidity S&P 500 ETFs after opening a US stock account; Second, utilizing ETFs listed locally in Hong Kong or Taiwan to bypass cross-border account opening; and Third, building positions in batches through systematic investment plans to smooth short-term fluctuations in exchange rates and valuations. Furthermore, investors with a higher risk tolerance can use Nasdaq 100 related products as satellite positions to increase exposure to growth factors, but they must accept higher volatility.
Three points are worth noting during implementation: First, fluctuations in the USD exchange rate against HKD and TWD affect the actual return calculated in local currency. Long-term investors should view currency fluctuations as part of global diversification, not merely as a cost; Second, the tax treatments, such as dividend withholding and capital gains, differ between the two regions, so the latest regulations should be followed before trading; Third, currently, the information technology sector holds a high weight in the S&P 500. If there is concern about excessive concentration, it can be balanced by pairing it with equally weighted ETFs or value ETFs to avoid the paradox of "diversifying with an index only to become concentrated again in a single sector."
V. Conclusion: Buying US Stocks Means Buying a Mechanism
Returning to the initial question—why buy US stocks? The innovative soil where leading companies are concentrated and the diversified nature brought by global revenue are important reasons; but deeper down, it is this market mechanism of "survival of the fittest and continuous evolution." It does not attempt to predict the future but uses institutionalized blood exchange arrangements to keep the portfolio aligned with the economic future. For Hong Kong and Taiwan investors accustomed to chasing rebounds in the Hong Kong stock market or following trends in the Taiwan stock market, entrusting a portion of their holdings to this mechanism may be the most hassle-free and disciplined way to navigate the next industrial transformation.
Risk Disclosure: This article aims to analyze market mechanisms and asset allocation logic. The indices and individual stocks mentioned are for illustrative purposes only and do not constitute any investment advice. Markets involve risks, and investment requires caution.
