In top stocks of today, echoes of the past
As Chinese Communists gathered for the 17th party congress this week, they could boast of something that would have been unthinkable in the days of Mao: China now leads the world in the number of publicly traded companies with a market value of more than $200 billion.
China has passed the United States this year, with 8 companies among the 20 most highly valued ones in world stock markets. The United States has 7, Western Europe has 4 and Russia has 1.
Such an extraordinary capitalist accomplishment is not necessarily good news for the investors whose purchases propelled the companies to such heights of value. As can be seen from the accompanying tables, which show the worlds most valuable companies at the end of the 1980s and the 1990s, dominant markets may be vulnerable to a fall.
Japan stood atop the table in 1989, with 14 of the top 20 companies by market capitalization. Those who said Japanese valuations were ridiculous had lost lots of money, and in the U.S. Congress there was plenty of talk about protectionist legislation to shield American companies from unfair Japanese competition. A decade later, technology and communications companies dominated the world markets.
Both of those lists now provide painful memories for some. The 1989 list was dominated by Japanese banks, whose profits were enhanced by their stakes in many other Japanese companies whose shares were also soaring. After Japans bubble burst, those chart-topping banks were brought down by bad loans, leading to mergers and bailouts.
Some of the 1999 winners, like Intel, Microsoft and Cisco, remain successful, but with greatly reduced market values. Others, like Lucent, now part of Alcatel Lucent, and AOL, now part of Time Warner, are worth a small fraction of what they were then.
The Chinese stock market boom has parallels in both previous lists. Now it is Chinas trade surplus that angers American politicians, and Chinese companies profiting from owning stakes in other companies whose stocks are soaring.
Chinas stock prices have also been pushed up because there is a limited number of shares available for investors to buy, with most shares controlled by the Chinese government. In 1999, only a small portion of shares in many technology companies had been sold to the public, limiting supply as investors crowded in.
There are just three names that appear on all three lists. General Electric has endured, and so has Exxon, although it had to merge with Mobil to maintain its high position.
The other name is ATT, but that is a bit deceptive. The 2007 ATT is the result of the takeover of the old ATT, which had fallen on hard times, by SBC, a company that was spun off by the old ATT.
Even if the Chinese market is now a bubble, there is no guarantee that it will not continue to expand. The valuations of Japanese companies in the late 1980s, and technology stocks in the late 1990s, seemed unreasonably high for years before they collapsed.
