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How the List of Top Global Companies Has Changed Over Time

Editor, TRANSFIN
Dec 23, 2021 2:34 PM 5 min read
Editorial

The world is changing at a fascinating pace. And with it are changing the corporations which come to represent the face of our economies. 

There is a remarkable shift in the list of the largest companies of the world (by market capitalisation) between now and from over a decade ago. Although the United States still leads the quorum, their composition has changed phenomenally. Banks, consumer electronics, telecommunications and oil companies (to some extent) have been replaced by tech, tech and tech companies…

Technology has become the currency of growth and due to that, the market caps of tech companies have swelled, thanks to their asset-light business models and access to massive markets. 

There are, however, some exceptions to this trend, mostly from the old money-making sectors like oil and gas which have managed to maintain top valuations over time (we'll get to that shortly). 

In fact, country-wise composition has changed as well. With the rapid rise of Chinese companies to the top over the last two decades followed by their recent exits (Tencent and Alibaba dropping out of the list), the mercurial tale of Chinese tech dominance internationally has also become a point of doubt and debate. 

Let's delve deeper and understand what has driven these trends so far.

The Showstoppers

In March 2021, Apple regained its crown as the world's largest company by market cap. As it continues to maintain this lead, it is accompanied by other US tech giants like Microsoft, Alphabet, Amazon, Meta (formerly Facebook) etc. 

Despite the pandemic slowing down the global growth engines, these companies continued to survive and thrive with their multi-billion dollar turnovers. This also highlights the ability of large companies to leverage technology and grow at scales over this period breaking away from the trend line. 

There were also some outstanding achievers. Tesla singularly reported a 565% rise in market cap in the year ending March 2021. Non-US companies like Meituan stood out as well with a 221% rise in relative terms. Essentially, technology emerged as the largest contributing sector in the list of top 100 companies of the world. 

The US remains on top by claiming most heads in the list whereas other once-prominent markets like Japan, France and the UK have witnessed their shares in the world's top 100 companies fall. The whole of Europe accounts for just $3.46trn (11%) of the total market cap value of the list. 

And then there is China. In 2016, Chinese companies became the biggest entrants into the Global 500 club. Chinese tech companies like Tencent and Alibaba emerged as key competitors to their US counterparts ushering the potential future of a Chinese entrepreneurial monopoly. 

However, the trend came to a skittish halt after the recent policy changes of the Chinese government. Once a strong supporter of technological innovation and growth, the Chinese state has since tightened its scrutiny over its own companies resulting in a massive turnaround of their fortunes on the global stage. In fact, China Mobile was the only company in the Global Top 100 that saw a decrease in market cap in the year ending March 2021. 

This was cemented by rising trade tensions and geopolitical hostilities between the US and China which culminated in heavy sanctions against the latter. The increasing American distrust towards equity and funds moving into Chinese shores in light of the Chinese Communist Party's sleuth-like tactics and alleged human rights abuses has led to an unfavourable environment for Chinese businesses lately. 

It could be a temporary setback that might turn around with overnight changes in policy or it could linger for a while. Either way, in light of rising sectoral debacles (like the real estate crisis), a national economy struggling to recover after the pandemic and continuing trade embargoes, Chinese companies no longer feature prominently in the top global lists. 

 

Old versus New Money

Ten years ago, when oil was over $100 a barrel, oil companies dominated the top ten lists. Coincidentally, it was a Chinese oil giant (PetroChina) in 2008 which was the first ever to cross the $1trn-mark in market value. Financial fortunes highly favoured the black gold with five out of the top ten companies operating in the oil and gas industry. 

But then followed a spell of misfortunes, like large-scale spills (e.g. Deepwater Horizon), rising climate consciousness and resistance to fossil fuels accompanied with a pioneering revolution in the electric mobility industry. With the exception of Saudi Aramco (and its deep-pocketed benefactors), oil and gas companies have begun to steer away from the top global lists as their ability to maintain steady and predictable revenue streams becomes uncertain. 

Tech companies, on the other hand, registered a 71% increase in their value YoY (March 2021). 20 tech companies alone account for a total market cap of 33%. Large tech companies benefit from globalisation and emerging new markets, thereby catapulting their influence to reach even bigger markets.

 

The ABCs of Value Creation

Aside from successful strategisation, production and management, the total value of a company's shares can be affected by a host of other factors. If this wasn't true, then a company such as Tesla wouldn't dwarf the combined market cap of the next 10 auto companies put together despite claiming a global share of merely 1.2% in deliverables. 

It is also worth mentioning that tech stocks don't always fare well in terms of revenue even if they do by market value. Take Tesla's example. It has a P/E of 332 in an industry where P/E ratios of 20-30 are typical in good years. 

Why, then, do stock investors pour money into tech companies and startups? It is because of their higher potential for growth. Investing in future profitability through new products and services takes priority over hitting earnings estimates and thus gives rise to the bullish belligerence that drives up their value.  

The pandemic is another factor. The so-called stay-at-home stocks (Netflix, Zoom etc.) managed to gain amid lockdowns last year. Those with digital operations (e.g. IT, software and tech) continued to survive the economic slowdown due to improved adaptability in remote-working times. 

Until only a decade ago, the most capitalised enterprises in the stock market were traditional long-standing blue-chip biggies like Exxon, General Electric (GE), Hewlett Packard (HP), AT&T etc. Today, they are ALL tech companies, if not the same tech companies. GE and HP have been replaced by the likes of consumer discretionary tech companies like Apple, Microsoft and Amazon. 

While most of the world's highest-valued companies are US-based, exceptions like TSMC (Taiwan) and Saudi Aramco prove that the geographical and sectoral composition of the list is still somewhat varied. 

Big oil companies like Chevron and ConocoPhillips and financial companies like Bank of America and JP Morgan Chase have been replaced by healthcare or pharmaceutical companies. Berkshire Hathaway has been an exception, however, as a result of its prolonged stock bullishness. Incidentally, in 2019, for the first time in the history of Fortune 500, no automobile company made it to the top ten. 

But with rising tides of regulatory scrutiny and civil rights awareness like freedom of speech and data privacy taking the centrestage of political dialogues, the growth story of tech companies may come to pass too, unless they evolve and improve with time. 

FIN.
 

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