On the Revenue Exposure of Top 10 Companies in the MSCI Europe Index

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Many multi-national firms based in the developed world have substantial exposure to overseas markets than their domestic markets. In fact, some derive a big portion of their revenue and earnings in foreign countries than their home countries. For instance, BHP Billiton Ltd is a FTSE 100 firm in the UK. However the mining giant earns most of its earnings from abroad for obvious reasons that the UK is an island and does not have many natural resources. So when looking for foreign stocks it is important to understand where they are most exposed to. In the BHP example, it is more dependent on the global economy than the British economy. So investing in BHP to gain exposure to the UK market will not be a wise move.

I came across an article recently that discussed the factors to consider for diversification using the MSCI Europe as an example. From the article:

  • Globalization has changed the diversification game. For decades investors could diversify their exposure to U.S. stocks by buying baskets of companies based overseas. But new global trade patterns have turned ideas and information, not just manufactured goods, into valuable products. This shift has blurred the lines and turned companies’ physical headquarters into just a mailing address. Successful global companies often collect more revenue outside their own home country borders. For instance, a review of S&P 500 company revenues shows that about 37% is derived from outside the U.S. Meanwhile, the 10 largest companies in the MSCI Europe Index get approximately 69% of revenues from outside Europe, in part due to slower growth in their region and better opportunities abroad.

 

Source: Global investing reality check, Capital Group

The companies listed above are shown below with their ADR tickers and current dividend yields:

1.Company: Royal Dutch Shell PLC (RDS.A)
Current Dividend Yield: 5.50%
Sector: Oil, Gas & Consumable Fuels
Country: UK

2.Company: Nestle SA (NSRGY)
Current Dividend Yield: 3.10%
Sector: Food Products
Country: Switzerland

3.Company: Novartis AG (NVS)
Current Dividend Yield: 3.50%
Sector: Pharmaceuticals
Country: Switzerland

4.Company: HSBC Holdings PLC  (HSBC)
Current Dividend Yield: 5.27%

Sector: Banking

Country: UK

5.Company: Roche Holding AG (RHHBY)
Current Dividend Yield: 3.53%
Sector: Pharmaceuticals
Country: Switzerland

6.Company: BP PLC (BP)
Current Dividend Yield: 5.46%

Sector:Oil, Gas & Consumable Fuels

Country: UK

7.Company: Total SA (TOT)
Current Dividend Yield: 4.53%
Sector:Oil, Gas & Consumable Fuels
Country: France

8.Company: British American Tobacco PLC (BTI)
Current Dividend Yield: 6.03%
Sector:Tobacco
Country: UK

9.Company: Siemens AG (SIEGY)
Current Dividend Yield: 3.25%
Sector:Industrial Conglomerates
Country: Germany

10.Company: Sanofi (SNY)
Current Dividend Yield: 4.13%
Sector: Pharmaceuticals
Country: France

Note: Dividend yields noted above are as of Aug 1, 2018. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions

The above firms, except HSBC, are excellent multi-national firms with established track records. Investors looking to diversify with European companies can consider adding them in phases.

Fact of the Day: China Hi-Speed Rail Network

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High Speed Rail Network in China is the largest in the world even beating developed Europe. The following fact the astonishing growth in high-speed rail transportation in China.

High-speed rail network before 2007 = 0  kilometers

High-speed rail network now = 25,000  kilometers 

Source: Seeing is believing – China’s amazing growth over 40 years, China Daily

In just 10 years the Chinese have successfully built the network from scratch spanning 25,000 kms. Curious minds are thinking how many years it will take the US to beat the Chinese in this form of transportation by building 25,000 kms or the lesser equivalent in miles.

Tax Revenues as a Percentage of GDP: Chart

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Tax revenues as a percentage of GDP vary widely across countries.  The chart below from OECD shows the figures for the latest year available:

Click to enlarge

Source: Seven surprising facts about tax revenues around the world, Schroders

Though Greece and Italy have often been criticized they generate more taxes as a percentage of GDP than most other economies. Most European countries especially France and Nordic countries have higher tax revenues than the OECD average.

The US rate is lower than the OECD average and Mexico has the lowest tax revenues as a percent of GDP among OECD member nations.

The Major Goods Trading Partners With The US: Chart

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China is the top trading partner with the US. Neighbors Canada and Mexico are the second and third major trading countries followed by Japan, Germany, etc.

Updated: 12/23/2019

Click to enlarge

Source: Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, U.S. DEPARTMENT OF THE TREASURY OFFICE OF INTERNATIONAL AFFAIRS, April 2018

India’s Sensex Reached A New Record High

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The Indian equity market is on fire with the benchmark BSE Sensex index reaching a new record high yesterday. The index rose 352 points or 0.95% to reach 37,336. Sustained capital inflows and India’s insulated economy from the impacts of Trump’s trade wars are fueling the surge in stocks. In dollar terms, the Sensex is up by 9.6% YTD.

The chart below shows the 5-year return of the Sensex:

The chart below shows the long-term return of the Sensex:

Source: Google Finance

From a recent journal article:

Analysts point to several reasons for the rally. For a start, India is booming, even as neighboring China shows signs of slowing, and was the fastest-growing big economy in the first three months of 2018. All else being equal, solid growth bodes well for corporate earnings, and tends to send shares higher.

In fact, per-share earnings for companies in MSCI’s India index should rise 28% in 2018, far outpacing the roughly 15% growth for emerging markets in Asia as a whole, said Ben Luk, a global macro strategist at State Street Global Markets. It helps that net profits last year were rather lackluster, especially for financial firms, he said.

In addition, millions of Indians are pouring money into shares for the first time. That has supported stock prices even as overseas buyers, who own roughly a quarter of the market, have grown more cautious. Locals added roughly $800 million in new positions this month, overwhelming the $44 million sold by foreigners.

Unlike rivals in Tokyo and Shanghai, for example, which experienced previous huge rallies, peaking in 1989 and 2007 respectively, it is also comparatively easy for this market to break new ground.

Moreover, India is comparatively less exposed to changes in U.S. trade policy. The U.S. -China spat has rippled through Asia, hurting companies that rely on cross-border trade.

Source:Indian Shares Set Records, WSJ

The soaring Sensex has been powered by a handful of stocks and some analysts are remain cautious. From an article at First Post:

The Sensex hit dizzying heights, reaching the 37,000-level for the first time on Thursday on widespread buying in capital goods, FMCG, realty and banking stocks by domestic institutional investors. The benchmark index also gained on positive global cues.

The NSE Nifty too scaled a new peak of 11,172.20 points.

Stock market analysts are optimistic and told Firstpost that the Sensex and the Nifty will peak further. Analysts said that by Diwali, the Sensex could touch 38,000 points and the Nifty could hit the 11,500 points milestone. However, they cautioned that though the indices are on a high, and have logged an upward momentum over the past few days, the upbeat sentiment is reflected in only the top 10-12 stocks on the Bombay Stock Exchange. The mid-caps and small caps are still low, they said.

Source: Sensex at record high of 37,000 is just an illusion; rally led by just top 10 stocks, say analysts. FirstPost

In addition, the market capitalization of India equity market has actually dropped by 8.44% in dollar terms in 2018.

Source: Indices at record highs but India’s market cap down over 8% in 2018. Live Mint

Related ETFs:

  • WisdomTree India Earnings (EPI)
  • iShares S&P India Nifty 50 Index Fund(INDY)
  • PowerShares India ETF (PIN)

Disclosure: No Positions