Opinion

Felix Salmon

Stock-listings chart of the day, global edition

By Felix Salmon
February 25, 2011

My colleague Peter Rudegeair asked me a good question last week: even if the number of stocks listed in the US is falling dramatically, what’s happening in the rest of the world? He even helped answer the question, finding data from the World Federation of Exchanges. Which I then played around with a bit in Excel to generate this:

exchanges.png

The US is clearly the outlier here: everywhere else in the world is still seeing the number of listings rise. (And now maybe it’s a bit more obvious why Deutsche Börse is buying the NYSE, rather than the other way around.) At the end of 2009, there were more companies listed in the Americas outside the US than there were inside the US.

US listings now account for only about 10% of all listed companies globally — that’s significantly less than America’s share of global GDP, which is closer to 20%. Even as the US is moving from public to private, or at the very least from many public companies to fewer public companies, the rest of the world is still moving fast in the opposite direction.

Looking at this chart, it seems to me that anybody with the bulk of their equity holdings in US companies is clearly missing out on something important. Yes, US companies are active globally, and those US listings do include a smattering of foreign companies, in the form of ADRs. But it’s a big world out there, and if you’re looking for an everything bagel, it’s going to be hard to find it if you confine your search to US counters.

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Aside from ADRs, direct investment in foreign companies is tricky. You can invest in them through index funds or mutual funds, but that added layer obscures the picture and makes it difficult to understand what you really own.

What is an “everything bagel” anyways? It is a single bagel with at least four distinct flavors and textures, working together. I can think of a few “everything bagels” traded on the NYSE:

J&J gives you a taste of pharma (36%), medical devices (40%), and consumer products (24%). Over 50% of its sales (and the majority of its growth) outside the US. Recently seasoned with Acclarent, Crucell, Micrus, Cougar, and Mentor — in some cases removing publicly traded companies from the exchanges.

United Technologies operates in six different manufacturing segments, spanning everything from A/C and elevators to aviation (commercial and military). 55% of sales outside the US.

Or Coca Cola. While it isn’t exactly diversified (they make, bottle, and distribute drinks of various sorts), they have a worldwide footprint. Again, less than half their sales from the US.

Does it matter more where a company is incorporated or where it operates? Is there a fundamental difference between Kraft and Unilever? Between AB Inbev (formed through an international merger) and Diageo? Between J&J and Novartis? And are there “emerging market” companies ready to join in that global game?

Smaller businesses tend to be more closely tied to their home country, but the megacaps offer worldwide exposure. And in some cases a little bit of everything.

P.S. Thanks for the look back to last May. Did you exit the stock market at that time like you advocated others do? Hope you got back in time for the second-half rally last year.

Posted by TFF | Report as abusive
 

Here’s the article I was remembering:

http://blogs.reuters.com/felix-salmon/20 10/05/10/why-volatility-means-you-should -sell-stocks/

People frequently confuse market volatility with risk. In any given year, the sum of the daily movements total more than 100% (roughly half of them positive and the other half negative). Hard for me to read that as anything more than a lot of random noise, though I guess the HFT trading algorithms are able to pull useful patterns out of it.

Active markets are inherently noisier and more volatile than slower markets. Real estate is a notoriously non-volatile market, with price expectations changing slowly. Again, lack of volatility should not be confused with lack of risk.

And which is riskier? An investment with mean annual returns of 2% and a SD of 1%? Or an investment with mean annual returns of 6% and a SD of 4%? The latter is more likely to have a “down year”, but very rarely will underperform on a five-year sample. Equities have held a small premium over the past decades, despite falling interest rates. Is it truly a stretch that they might maintain — perhaps even widen — that premium in an environment of rising interest rates?

Posted by TFF | Report as abusive
 

The worrying thing about this trend becomes more apparent the further you extrapolate it into the future – the number of companies falls, and so competition decreases – ultimately, to zero. Except in the rest of the world. This drives innovation out of the US into the rest of the world, which as a European doesn’t bother me that much, but it has repercussions.

In the current world picture, everybody seems so focussed on today, this week, this quarter that a year seems a long time and the future…. who cares about the future? Just carry on fiddling as Rome burns as the cries for less and less regulation accelerate the process.

Posted by FifthDecade | Report as abusive
 

What is the optimal number of countries to have publicly listed in the U.S.? What makes you think it is closer to 10,000 than 1,000? Furthermore, what stops someone who wants to trade non-U.S. stocks from opening an Interactive Brokers account and doing so, or if they are not sophisticated enough to choose stocks, buying ETFs?

Furthermore, the metric of “how many listed companies” has no relation to economic reality. I could list a bunch of SPACs holding $100m in cash or even tiny penny stocks with totally speculative business plans, but to do so wouldn’t increase the amount of meaningful equity investment available to U.S. investors. JNJ and other large companies could list minority stakes in their subsidiaries, as do many international companies (Toyota, Inbev/Ambev, Santander, etc.). Felix, you can do a little better than boring counting if you engage your brain.

Posted by najdorf | Report as abusive
 

1.
Who confines their search to “U.S. counters”? Conventional wisdom has long been to have a sizable fraction of one’s portfolio in international markets.

2.
I find this impossible to parse without a presentation of how much business “U.S. based companies” conduct overseas. I think this is larger than Mr. Salmon implies.

3.
Mr. Salmon seems to be concluding that consumers in the U.S. are actually buying products increasingly from non-publicly traded companies. I look around and at least anecdotally, am not convinced. By far it would seem that U.S. consumers buy foods, building supplies, gasoline, many computer parts, cars, banking services and more from publicly traded companies.

4.
I get a bad feeling that this article, like so many financial articles online, is here to sell advertising via seizing, using numerology techniques, on a seemingly stunning statistic that, while interesting, portends far less profundity than the author suggests.

Posted by ElleNavorski | Report as abusive
 

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