New York: American stocks are dominating global equities by the most in a decade, taking a majority of the spots in a ranking of the 20 biggest companies, after earnings rose faster than the rest of the world as the global economy rebounded.
Apple Inc., International Business Machines Corp., Wells Fargo & Co. and four more US companies joined the top 20 since stocks peaked in 2007, bringing the total to 14, according to data compiled by Bloomberg. They replaced Moscow-based Gazprom OAO, China Petroleum & Chemical Corp. in Beijing, Petroleo Brasileiro SA of Rio de Janeiro and six others from Europe and Asia. Of the nine added, only BHP Billiton Ltd. and Nestle SA are based outside the US.
More US corporations are represented than any time since 2003 after 10 quarters of economic expansion and profit growth lifted the Standard & Poor’s 500 Index 109 per cent since shares bottomed in March 2009. The shift reflects volatility in emerging markets and shows how innovation builds value in the US.
“The US is just the best place on the planet to have a great idea and turn it into a big business,” according to Michael Shaoul, chairman of New York-based Marketfield Asset Management, which oversees $2.7 billion (Dh9.9 billion).
“There’s another reason for this list to have shifted and that is the falling of prior darlings,” Shaoul said. “A lot of the ones which have fallen are energy and emerging-market related.”
Reasons for strength
American companies are gaining strength in part because of Europe’s sovereign debt crisis. While the S&P 500 fell 0.5 per cent last week to 1,411.13, retreating from a four-year high, amid concern European leaders will fail to preserve the 17-nation currency union, the Euro Stoxx 50 Index slid 1.5 per cent. S&P 500 futures added 0.1 per cent to 1,410.6 at 8.52am in London on Monday.
Computer and software makers became the top industry in the S&P 500, overtaking financial companies, as Apple and IBM joined Google Inc. and Microsoft Corp. among the biggest stocks. The last time a non-US technology producer made the global ranking was in 2001, when Finland-based Nokia Oyj was the world’s largest mobile phone maker. Nokia’s market value has fallen by 92 per cent since Apple introduced the iPhone in 2007.
The Cupertino, California-based maker of iPad computers last week became the most valuable US company ever as the stock rose to $668.87 on August 22, giving the company a value of $627 billion. Apple, which approached bankruptcy in 1997, has jumped more than 80-fold in the past decade.
IBM’s market value more than doubled over the decade as the company shifted its strategy toward more profitable software sales and away from hardware and consulting. The New York-based company, with a market capitalisation of $226 billion, closed the gap with Microsoft, valued at $256.2 billion, to become the No. 3 technology maker and the world’s seventh-biggest company.
Microsoft, based in Redmond, Washington, was worth four times as much as IBM in 1999. Mountain View, California-based Google, owner of the world’s most popular search engine, is valued at $222.6 billion.
No match to Apple, Google
“There are not a lot of other companies that can compete with the Googles and the Apples of the world,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said. “We have probably the most cutting-edge companies in the technology space that exist today. Who can match Apple? I can’t think of anybody.”
Computer and software makers represent 20 per cent of the S&P 500. The industry’s weighting outside the US is 4 per cent, as measured by the MSCI World ex-US Index.
Profit growth drove the US gains. The 14 biggest US companies earned $248.4 billion in the last 12 months, more than double the total made by the 67 companies in Brazil’s Bovespa Index. Their market value reached $3.57 trillion, about the size of Germany’s 2011 gross domestic product.
Earnings at the seven newly added American companies surged 40 per cent during the past four years, while income for the 13 non-US firms that made the 2007 list rose 6 per cent, data compiled by Bloomberg show.
The ranking reflects the US economy, where growth climbed back toward pre-2008 levels faster than other countries. Gross domestic product is forecast to gain 2.2 per cent this year, according to the median estimate of 78 economists surveyed by Bloomberg. That compares with an average of 2.6 per cent between 2002 and 2007, before the credit crisis, the data show.
Growth declines elsewhere
China is projected to expand by 8.1 per cent, compared with its mean rate of 11.2 per cent before the global recession. Brazil’s GDP may increase 1.9 per cent, down from an average of 3.8 per cent. Russia may grow by 3.8 per cent, next to 7.1 per cent in the five years before the credit crisis.
“People perceive not only better growth for the US, but also less risk,” Chris Leavy, the chief investment officer of fundamental equities at New York-based BlackRock Inc., which oversees $3.56 trillion as the world’s biggest money manager, said in an August 22 interview.
Investors are demanding more profit to reward companies with higher stock prices than before the credit crisis shattered confidence in equities. The average capitalisation of the largest 20 companies shrunk 17 per cent to $242.5 billion since 2007 even as profits surged almost fourfold to $18.8 billion, data compiled by Bloomberg show.
The biggest companies, dominated in 2007 by commodity explorers and enterprises controlled by China’s government, traded at an average price-earnings ratio of 57.6, the data show. Today, after the addition of two American technology developers and a California bank, the average valuation is 12.9, according to the data.
“It’s so commonplace in this country to vilify corporations, but the truth is the American corporate structure has worked very well,” David Kelly, chief market strategist at JPMorgan Funds in New York, said in an August 22 phone interview. His firm oversees about $348 billion. “There are other countries which are doing very well economically, but don’t do as good a job as inventing and reinventing themselves.”
The S&P 500 trailed the rest of the world in the previous bull market as accelerating growth in China boosted demand for commodities from Brazil to Russia. The index rose 99 per cent during the five-year rally that ended in October 2007, lagging behind a 187 per cent gain by the MSCI World ex-US Index and a 416 per cent surge in an MSCI gauge tracking 21 emerging markets.