Tuesday, July 10, 2012

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 darnedest 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-2011:

NYSE Euronext US$14.2 trillion (or US$14,200 billion)
Nasdaq US$4.68 trillion
Tokyo Stock Exchange US$3.32 trillion
London Stock Exchange US$3.26 trillion
Shanghai Stock Exchange US$2.35 trillion
HK Stock Exchange US$2.25 trillion
Toronto Stock Exchange US$2.29 trillion
Brazil Bovespa US$1.22 trillion
Australia ASE US$1.19 trillion
Swiss Exchange US$1.09 trillion
Shenzhen Exchange US$1.055 trillion
India BSE US$1.01 trillion
South Korea Exchange US$994 billion

In Asia-Pacific, the Jakarta Stock Exchange has a figure of US$395 billion. The Singapore Exchange at US$308 billion. The KLSE at US$395 billion. The Thailand SE at US$268 billion.

GLOBAL top market cap companies
Market capitalization (billions)
1United StatesAppleElectronics$560.49
2United StatesExxon MobilOil and gas$381.02
3United StatesMicrosoftInformation technology$248.79
4ChinaPetroChinaOil and gas$237.02
5United StatesWal-MartRetailing$231.99
6United StatesIBMInformation technology$226.10
United Kingdom
Royal Dutch ShellOil and gas$205.57
8United StatesAT&TTelecommunications$204.84
9United StatesGeneral ElectricConglomerate$203.16
10Hong KongChina MobileTelecommunications$202.52


What was interesting was that I did a similar posting back in early 2007 (before the crisis), the top 10 in the US  then were:

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

GE has fallen into a hole from being second with US$347bn to just a tad above US$200bn. Citigroup, AIG and Bank of America have dropped out altogether. The stars were of course APPLE from out of the top 10 to the top spot.

Just looking at the exchanges value and market cap of some of the biggest companies, theoretically speaking the ENTIRE BURSA-KLSE is only as big as EXXONMOBIL!!! Which means ExxonMobil can basically own all the one thousand over companies listed on Bursa-KLSE in exchange of their shares! Or put it another way, all employees working for a listed company in Malaysia could be working for just one company, i.e. ExxonMobil!

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 (RM3.1bn) - 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 Malaysia:

1. MAYBANK – 50536.8 (US$16.2bn)
2. CIMB – 47890.7 (US$15.4bn)
3. SIME – 47054.1
4. PBBANK – 40405.2
5. MAXIS – 39300.0
6. MISC – 36647.7
7. TENAGA – 35729.1
8. IOICORP – 31775.5
9. AXIATA – 31162.6
10. GENTING – 24936.7
11. PETGAS – 19589.4
12. PPB – 18375.3
13. DIGI – 17633.7
14. KLK – 16930.6
15. PLUS – 16000.0 (US$5.1bn)
16. YTLPOWER – 15743.3 (US$5.06bn)
17. GENM – 15652.2 (US$5.03bn)
18. AMMB – 14437.9
19. YTL – 13528.2
20. HLBANK – 13367.6

So technically speaking, companies below GenM and YTL Power are just mid caps in reality.

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.

To those in the local markets who complain about their salaries, we must look at where we are and the deal flows. If you are local and is at the top 5%, you can get salaries and bonuses on par with almost the top 10% in other financial centers in Asia (i.e. btw US$200,000-700,000). The million dollar packages are reserved for rainmakers - people who can make things happen. If you an analyst, there is only so much you can get being local, always pick a regional industry, not a localised one, good senior regional analysts can get US$200,000-500,000 packages.

There are analysts who just cover ONE stock, like BHP Biliton or Samsung and can command million dollar salaries. Why? There are days when the turnover for just Samsung is equal to the entire turnover registered for the Bursa-KLSE, so that kind of justifies hiring the top person and paying them well.

Closing Comments
It is not necessary to be at HK or Singapore to rake in big bucks, its easier to be the big fish in a small pond. Many asked me if I invest overseas, I said, why bother, I can make enough locally. Here I have the network and you know the companies like the back of your hand, if not, just a call or two will get your there. You can make as much if not more locally than regionally, just be focused and get really well at what you do.


walla said...

We are not globally competitive. We don't have home-grown multinationals of any size serving offshore retail markets.

If you look at the list of local companies, their businesses serve mostly the domestic market whose options for growth are the less for the more of bad governance and business environment factors. So why should investors want to play here when they can have richer and riper choices elsewhere?

Now, if your post and the earlier one are to support local bourse players, then what is needed are the reasons to invest and not the reasons to speculate.

The problem is our companies don't innovate or create blue oceans so it'll be hard to find new interesting and good reasons to park one's money in order to give local bourse players more opportunity to tap their networks to make some dough while sparking capital building and business expansion.

Our domestic market for anything is small. Of the 28 million, ninety percent are not sophisticated and maybe seventy percent live from hand to mouth against the daily assaults of rising costs and falling quality in all their spheres of life, all the while looking at a closing window of global relevance.

What this country needs is an infusion of new ideas but that movement can only be sparked if people are enthused to contribute which can only take place if the government element is changed.

What do you THINK?

William Wang said...

Indeed I agree with you 100%, why bother to invest in countries that you dont understand their culture, character and style of doing business. I dont even bother on companies that are from china or taiwan that are listed in Bursa.

Salvatore_Dali said...


i totally agree with you ... yes we have shitty companies ... to make money fm the stock market u need not find the next Apple or Petrochina or HSBC .... valuations will rise and fall for good stocks as well as so-so companies .... industry will have cycles, certain companies will still outperform even in Malaysia ... we do our homework and will still spot those...