Monday, March 27, 2006

Stock Market Capitalisation - A Reality Show

Finding Your Space In The World

Sometimes when we talk about financial markets, we miss the bigger picture of how things are. One could be the minister of finance or a big hedge fund trader or a big shot analyst... in various countries in Asia or Australia for that matter, we tend to get lost and self absorbed in our own world, exaggerating our importance. Many Asian investors and management often wonder why foreign investing institutions or foreign investors do not buy more shares of Asian companies. Some government authorities try their darndest to drum up interest among the foreigners. Maybe if we look at comparative market capitalsations, we will get a better picture.

Market capitalisation is calculated by multiplying the number of outstanding common shares of the firm and the current price of those shares. The term capitalisation is sometimes used as a synonym of market capitalisation; more often, it denotes the total amount of funds used to finance a firm's balance sheet and is calculated as market capitalisation plus debt (book or market value) plus preferred stock. Below are the approximate total market cap of the "domestic listed companies only" on the respective exchanges as at end-2005 (or figures as close to end-2005):

NYSE US$13.3 trillion
Nasdaq US$3.6 trillion
Tokyo Stock Exchange US$4.6 trillion
London Stock Exchange US$3.1 trillion
Euronext US$2.7 trillion
Deutsche Bourse US$1.2 trillion

In Asia-Pacific, the HKSE's figure was US$1.05 trillion. The Jakarta Stock Exchange has a paltry figure of US$50 billion. The Singapore Exchange at US$203 billion. The Taiwan Stock Exchange at US$480 billion. The Bombay SE comes in at US$592 billion. The KLSE at US$190 billion. The Thailand SE at US$142 billion.

The 10 largest US companies listed on NYSE according to market cap:

1) Exxon Mobil US$365 billion
2) General Electric US$347 billion
3) Citigroup US$230 billion
4) Bank of America US$212 billion
5) Procter & Gamble US$197 billion
6) Pfizer US$193 billion
7) Wal-Mart US$188 billion
8) Johnson & Johnson US$179 billion
9) AIG US$170 billion
10) Altria US$150 billion

Bearing in mind, I didn't even venture to include some of the big companies on other exchanges such as Microsoft US$279 billion, BP Plc US$236 billion, Royal Dutch Shell US$206 billion, HSBC US$190 billion, Petro China US$182 billion, Toyota US$174 billion, etc..

Just looking at the exchanges value and market cap of some of the biggest companies, theoretically speaking the ENTIRE KLSE is only as big as HSBC!!! Which means HSBC can basically own all the one thousand over companies listed on KLSE in exchange of their shares!

Either Citigroup or Bank of America could do the same for all the domestic companies listed on Singapore Stock Exchange. When just ONE company can account for your entire country's exchange market capitalisation - that's a reality check. That should give us a better sense of where we are in the economic world. I mean the CEO would almost be able to proclaim himself/herself as KING/QUEEN of the country - if I "control" all the companies on the Singapore Stock Exchange, that is a pretty powerful position, even PAP would have to give way man!!!

This game is quite fun, say Exxon mobil could just borrow a little bit more and then it could take over all the companies listed on Taiwan Exchange. General Electric should do this, it could buy out all the companies on KLSE and Thailand Stock Exchange in exchange for GE shares. instead of running GE from a tiny building, you could run companies over two decent sized countries, with lots of island resorts to boot.

In the US they have their own categories of stock size. A small cap is defined as having a market cap of below US$1 billion (RM3.7b / S$1.62b / HK$7.8b / A$1.34b) - and that's a SMALL CAP in the US!!! Mid-caps have a capitalisation of between US$1 billion to US$5 billion. Large caps are those exceeding US$5 billion.

So on that "US based categorisation", the following are a selection of the biggest companies from HK, Malaysia and Singapore:

a) Maybank US$9.7 billion - Large Cap
b) Sime Darby US$3.2 billion - Mid Cap
c) Genting Bhd US$3.5 billion - Mid Cap
d) EON US$0.55 billion - Small Cap
e) Hutchinson Whampoa US$35 billion - Large Cap
f) Bank of East Asia US$4.7 billion - Mid Cap
g) New World Development US$2.47 billion - Mid Cap
h) DBS Group US$13.4 billion - Large Cap
i) Great Eastern Holdings US$3.6 billion - Mid Cap
j) Singapore Press US$4.2 billion - Mid Cap
k) City Developments US$3.3 billion - Mid Cap
l) Siam Cement US$8 billion - Large Cap
m) Thai Airways US$2.1 billion - Mid Cap
n) Bangkok Bank US$3.9 billion - Mid Cap
o) Bank Mandiri US$3.3 billion - Mid Cap
p) Astra International US$2.6 billion - Mid Cap

This blog is not meant to shame or embarress, but rather a constant reminder to all investment pros in Asia, that we have to work harder in order to make a similar level of money. The scaling and leveraging in the US or much of Europe offers scaled salaries. If you manage ten M&A transactions in Asia-Pacific (except in China, I guess), it would not yield even half of one good size M&A transaction fees in the US.

Plus to those who scream and yell, why don't they invest in Asia-Pacific ... well, Asia-Pacific is so SMALL, if you are managing a US$500 million fund, you might allocate US$100 million to Asia - how many countries will you have to cover just to manage 20% of your portfolio. While on the other hand, I can cover 40% of my portfolio in US stocks and the other 40% in big European stocks. Somehow stocks listed in the big bourses in Europe tend more to act and look similar (e.g. London, Paris, Germany) but each exchange in Asia-Pacific is a different animal on it own and require more work to understand before acting.


Nathan Kaufman said...

Any additional perspective on GE?

Salvatore_Dali said...


Well, if you are related to the other Kaufman, you should be a rich guy... As for GE, I do not know much in terms of details, but do believe that Welch's record in massaging quarterly targets/earnings is not as good as it seemed. Please read y blog on "Stop Those Earnings Guidance".

Salvatore_Dali said...

NEW YORK (MarketWatch) -- General Electric Co. shares could double in price within the next three years, according to Morgan Stanley analysts, who took a decidedly bullish turn on the stock Thursday.
in the past 12 months, but now faces the prospect of accelerating tailwinds and multiyear margin improvements, Morgan Stanley said. Only fellow Dow member ExxonMobil Corp. has a market capitalization greater than that of GE, the Fairfield, Conn.-based provider of financial services, maker of industrial equipment and movie and television network operator.
"While we acknowledge that it and other megacap names remain highly out of favor, we believe the value in the shares combined with conviction in our new margin expansion thesis is too attractive to ignore," wrote analyst Scott Davis.
He called a $40 to $45 price within 12 months "realistic" and said $60 to $65 a share was "quite possible" within three years.
The stock was last up in early afternoon trading by nearly 2% to $34.60.
"As we see it, Chief Executive Jeff Immelt has based his long-term business plan on the concept of using technology to grow the installed base, improve the portfolio and drive a larger service backlog" -- a switch from a GE under former chief Jack Welch, which lagged in technology, sales and marketing, according to Morgan Stanley.
GE appears to have finished its portfolio transformation and is now well into a process of maximizing operating leverage with a mix of products and technology, Davis wrote.
Whenever GE's margins rise, its stock tends to outperform the S&P 500; at the moment, Morgan Stanley said, the market is discounting GE's capacity to turn out better margins.
The company's industrial businesses, its second largest, account for 21% of estimated sales in 2006 but just 12% of its profit. The naming of John Rice to head that unit is a sign that GE is looking to turn around that business, which historically is a cash generator with limited growth potential, Davis wrote.
GE's infrastructure segment, its largest with 28% of sales in 2006 and 35% of profit, is also expected to grow more than widely thought. As its aircraft business strengthens and the power-generation market turns higher, margins in Morgan Stanley's bullish case reach more than 23.5% in 2010.
To get to a $60 to $65 three-year stock price outlook, Morgan Stanley assumes earnings multiples of 17 to 18 times 2010 earnings.
Padraic Cassidy is a reporter for MarketWatch in New York.


The Leakers - Helmed by the often brilliant Herman Yau Nai Hoi (whom I believe was from Malaysia who became a great success in HK films). 7...