Billion Dollar Startups Founded By Immigrants

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Immigrants are some of the largest successful community in the U.S. Highly educated and skilled immigrants dominate the high-tech industry in the U.S. especially in Silicon Valley. Many of the well-known startup success stories were founded by immigrants. Unlike other countries plenty of American venture capital firms are willing to bet on the next great startup.

According to a research report:

The research finds that among the billion dollar startup companies, immigrant founders have created an average of approximately 760 jobs per company in the United States. The collective value of the 44 immigrant-founded companies is $168 billion, which is close to half the value of the stock markets of Russia or Mexico.

Among the countries where immigrants came from and founded billion dollar startups, the top three countries are India, Canada and the UK.

The following table shows the startups with the high number of jobs created:

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Immigrant Startups and Jobs Created

Source: Immigrants and Billion Dollar Startups by Stuart Anderson, National Foundation for American Policy, Mar 2016

Tesla’s (TSLA)founder Elon Musk is an immigrant and so is Garrett Camp, the co-founder of Uber.

The full report is worth a review as it contains many other fascinating details.

Disclosure: No Positions

Top Trade Partners of U.K.

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The OECD has released a report arguing against UK’s exit from the European Union. The report states that exiting the EU would lead to a decline in British GDP in the future with economic growth stunted.

From the report:

Membership of the European Union has contributed to the economic prosperity of the United Kingdom. Uncertainty about the outcome of the referendum has already started to weaken growth in the United Kingdom. A UK exit (Brexit) would be a major negative shock to the UK economy, with economic fallout in the rest of the OECD, particularly other European countries. In some respects, Brexit would be akin to a tax on GDP, imposing a persistent and rising cost on the economy that would not be incurred if the UK remained in the EU.

By 2020, GDP would be over 3% smaller than otherwise (with continued EU membership), equivalent to a cost per household of GBP 2200 (in today’s prices). In the longer term, structural impacts would take hold through the channels of capital, immigration and lower technical progress. In particular, labour productivity would be held back by a drop in foreign direct investment and a smaller pool of skills. The extent of foregone GDP would increase over time. By 2030, in a central scenario GDP would be over 5% lower than otherwise – with the cost of Brexit  equivalent to GBP 3200 per household (in today’s prices). The effects would be even larger in a more pessimistic scenario and remain negative even in the optimistic scenario. Brexit would also hold back GDP in other European economies, particularly in the near term resulting from heightened uncertainty would create about the future of Europe. In contrast, continued UK membership in the European Union and further reforms of the Single Market would enhance living standards on both sides of the Channel.‌

Source: The Economic Consequences of Brexit: A Taxing Decision. OECD

The British economy will suffer due to a Brexit since trade relationship between the EU and the UK is high. The chart below shows the top trade partners of the UK:

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UK Trade Partners

Source: Schroders Economic and Strategy Viewpoint, Schroders

The EU is the largest export market for the UK followed by the U.S. About 45% of British exports go to the EU. Britain’s export to China is just 3.3%. On the imports side, the EU is the largest source of British imports.

Chart: IKEA – Number of Stores and Top Countries for Sales

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Swiss retailer IKEA is the world’s largest furniture chain. Similar to successful global retail chains such as Walmart, Tesco, Carrefour, etc. IKEA has a loyal following in the countries it operates. Here is a neat chart that shows some key facts about IKEA:

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IKEA Sales and Top Countries Chart

 

Source: IKEA’s India Bet Runs Into Thicket of Rules, WSJ, Feb 23, 2016

Update:

Related posts:

The Number of IKEA Stores per Capita by Country: Chart

On The Current Valuation of India Stock Market

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The Indian equity market is under-performing so far this year. The benchmark S&P Sensex index is down 2% year-to-date compared to S&P 500’s gain of 1.05%. Among emerging markets China is down much higher than India but Brazil is up by about 24% as Brazilian equities are recovering due to clarity on the political crisis there.

From an investment perspective, are Indian stocks cheap or expensive now?

According to an article by Sukumar Rajah at Franklin Templeton Investments, valuations of Indian equities currently are around long-term averages as the chart shows below. The previous peak of 20.9 for the S&P Sensex is unlikely to be reached again unless corporate earnings improve.

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India Sensex Long-term Valuations Chart

Source: How India Is Stepping Out of China’s Shadow, Sukumar Rajah, Franklin Templeton Investments, April 28, 2016

The easiest way to invest in India is via ETFs as only a handful of companies trade on the US exchanges.

As an emerging market, Indian stocks can be very volatile. So an investor should perform a deep analysis before jumping into any individual equity. ETFs on the other hand offer a safer option since they can contain a basket of securities.

Investors looking for income opportunities should avoid India since dividend culture is yet to be adopted by many firms and Indian firms are not known for sharing their wealth with investors. The current dividend yield on the S&P Sensex is just 1.6%.  Other emerging markets in Asia such as Thailand, Indonesia, etc. offer much higher yields of 3 to 4%. As a developing country one would expect Indian firms to offer higher dividend payouts to investors to attract capital. However that is not the case.

In summary, invest in Indian stocks for mostly capital appreciation.

ETFs: The Complete List of India ETFs and ETNs Trading on the US Markets

On The Relationship Between Chinese Economic Growth And Stock Market Returns

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A country’s economic growth as measured by GDP and stock market returns are not positively related to each other. Economic growth figures show what happened with the economy during a period and is a lagging indicator. On the other hand, stock returns are driven by a variety of factors including expectations of future earnings of a company. So in the short-term investors can over-hype certain stocks or sector leading to bubble level valuations. In this case, high stock returns does not have relationship with the underlying economy.

While the disconnect between economic growth and stock returns is high in developed countries, it gets to the extreme in developing countries. This is because emerging countries tend to have high economic growth and stock markets are still in early stages of development. For example, China is expected to grow only 6.5 to 7% this year. This figure is huge compared to developed countries. But for emerging countries like China high single digit GDP growth is considered moderate or low. Though Chinese GDP is projected to have this growth rate, stock markets in China are already down for the year. The Shanghai Composite Index has plunged 17% so far this year. It was down even more earlier in February.

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China GDP Growth

Source: WSJ

Here is an excerpt from an article by Ken Fisher is founder and chief executive of Fisher Investments:

STOCKS MOVE FIRST

For example, the US economy did fine overall in 1981, growing 2.5 per cent, though a recession started mid-year. Stocks knew it was coming, falling 4.9 per cent for the year. GDP was positive, yet stocks fell!

That recession lasted until November 1982, and GDP shrank 1.9 per cent that year. But stocks started pricing in the coming recovery before the economy improved – gaining 21.6 per cent in 1982. Negative GDP, yet hugely positive stocks!

The same thing happened in 2000, when real US GDP grew 4.1 per cent but stocks peaked and started their first down-leg of a major bear market, signaling the 2001 recession. Similarly, GDP was actually positive in 2008, though flattish, growing 0.4 per cent for the year, while stocks fell a big 37 per cent.

In 2009, stocks turned up in March, but the economy didn’t turn positive until the third quarter. Though growing by year-end, US GDP shrank 2.4 per cent in 2009, while US stocks boomed 26.5 per cent.

The positive third-quarter GDP reading was first released at the end of October. If you waited for that, you missed a 31.5 per cent move in US stocks from the March low. Stocks move first – up or down.

Second problem: even during a growth cycle, stocks can be below average when growth is above average, and vice versa. In 1992, real GDP growth was above average – 3.4 per cent – but stocks returned a fairly lacklustre 7.6 per cent.

Why? Expectations can get out of whack. If growth is above average but below expectations, that can disappoint. If it’s better than expected while still below average, that can boost returns. Surprise moves the market in the intermediate term, for better or worse.

And never forget! Stocks look forward, while GDP measures what just happened and is released at a lag. So while economic growth is an overall market driver, don’t expect it to be a leading indicator.

The US is a huge developed nation. In smaller developed nations, you can get even more disconnect – and more still in emerging markets. China, for instance, has had huge growth in recent years – topping 14.2 per cent in 2007!

And China has had some huge market years, up 87.6 per cent in 2003 and 82.9 per cent in 2006, for instance. But Chinese GDP grew 9.6 per cent in 2008 – when stocks plummeted 50.8 per cent. And Chinese stocks fell huge in 2000, 2001, and 2002, when its economy boomed.

GROWTH IN CHINA

It’s normal for emerging nations to have huge GDP growth. As a nation grows, it has big per capita GDP gains. As more of its citizens move up into an emerging middle class, they start purchasing cars, appliances and luxury goods, which also fuels growth. That in turn requires more infrastructure, which results in greater wealth and more growth.

Chinese GDP and stock market returns
Year China real annual GDP (%) MSCI China returns (%)
2000 8.4 -30.5
2001 8.3 -24.7
2002 9.1 -14
2003 10 87.6
2004 10.1 1.9
2005 11.3 19.8
2006 12.7 82.9
2007 14.2 66.2
2008 9.6 -50.8
2009 9.2 62.6
2010 10.6 4.8
2011 9.5 -18.2
2012 7.7 23.1
2013 7.7 4
2014 7.3 8.3
Source: International Monetary Fund, World Economic Outlook Database, Factset, MSCI China total return in US dollars

Plus, though China remains officially ‘communist’, it has loosened its economy tremendously (relatively). A lot of that growth is years of suppressed ingenuity and productivity hitting its economy all at once. Can it continue? Sure. There’s no inherent reason (other than government meddling) why China has to slow down.

Source: GDP makes stocks grow: Fisher’s financial mythbusters, Ken Fisher, Money Observer

The key takeaway here for investors is that investors should not base on their investment decision in emerging markets based on economic growth alone.