At the end of the 2010s, the world’s top ten most valuable companies are worth $6.5trillion. It’s a bold achievement to make onto the list, but equalling challenging, to stay there. The list is ever-changing, with typically two or three companies managing to hold their place for two consecutive decades. No company has stayed there for the past five decades, with the best attempt by Exxon, which managed four. Having been a top ten member since the late 1970s albeit through acquisition, it has dropped to 15th place. Is that the beginning of the end for oil or a contrarian buy? Microsoft and Wal-Mart have been regulars over the past three decades, with the latter just scraping through following a good run in 2019. In the long run, we suspect Amazon will take its place.
In addition to the top ten companies by value, each decade has highlighted a popular investment theme or country at the time; the most recent being the internet. As we approach 2020, AHFM are going to predict the top ten most valuable companies for 2030, along with the accompanying theme; for go good reason other than Christmas cheer. You’ll be able to judge us at the end of 2029.
The highlighted colours show the popular investment theme or country. The hot money shifted from energy to Japan, to tech and telecom, and then on to China before arriving at today’s internet. From the themed groups, typically only one stock manages to stay on the list a decade later. That is, it remains a top ten company, even though the theme has been replaced. Exxon, NTT and Microsoft have managed this in the past, but there are no stocks that followed the 2010 China theme. It’s a reminder that must have investments rarely turns out well. If in doubt, see Eastman Kodak in 1980. We take more pictures today than ever before, just without Kodak’s film. Whatever theme is popular today, will almost certainly be irrelevant in a decade’s time.
The stocks in white are the winners that made it onto the list, without being a part of the popular theme. IBM featured twice as did General Electric and Wal-Mart. These are vast companies, that somehow manage to stay vast.
There’s another observation, albeit tenuous. The decades have switched between themes and places. If that continues, and given we’ve just had a theme, 2030 will see a place define the era.
With a Shiller PE of 30 (trailing 10 years), the US market is richly priced. Furthermore, it may not even be the largest economy by then. According to the OECD, not only is China forecast to fly past but India too. The US could be humiliated into third place. Europe will be even more embarrassed as it may not have a single country in the top five as Indonesia, a nation of 300 million people by 2030, might even squeeze past Germany. Japan should hold its place, and this all points towards an Asian decade. That is our call.
Consider that Asian bull markets have tended to coincide with a falling dollar. If that comes, capital will rush to the region and lift asset prices to the skies. A weak dollar is likely as the US will ease monetary policy over the decade while running a ballooning budget deficit; a perfect storm. President Bloomberg is a real possibility for 2020. He richer than Trump, which will deflate Trump, and he knows how to win elections. As a democrat and a globalist, he’s more Blair than Corbyn. A President Bloomberg will ease tensions with China and set the scene for an Asian rally.
As for the stocks, to get into the top ten, the minimum entry requirement has risen from a market cap of $15 bn in 1980 to $350 bn in 2020. A best guess see that rise to $500 bn by 2030. We’ve tried to stick to the lessons of the past, which means just one stock from today’s internet theme can carry over and two stocks outside of the current theme. But we are going to cheat a little and take Amazon from the current theme and add Microsoft because it has made it three times in the past and is huge. In other words, Microsoft would probably feature even without its fellow dotcoms.
Most of the internet stocks will slide down the rankings. Apple will see margin compression and phones will drop out of Christmas crackers by 2030. Google will be a regulated utility, as will Tencent. Facebook will become irrelevant as people opt for privacy.
We have taken two from the non-theme stocks from the 2020 list, which are JP Morgan and Johnson & Johnson. Both have growing Asian divisions, which could become 50% of revenues by 2030. That leaves room for 6 new entries.
Aramco will float at some point and it’ll be straight in with a value well over $1 tn. Whatever you think of oil, Asia consumes plenty of it. And that also leads us to PetroChina, a vast company that trades at 0.2 times sales; a deep discount to the past. With $20bn of free cash flow forecast by 2023, and a normalised valuation, that should make it. Of course, this assumes that the green revolution takes a little longer than we’d like it to.
There are four spaces left and each must have an Asian flavour. Singapore, Thailand, Malaysia, Philippines and Indonesia don’t have any stocks that we see having a $500bn valuation by 2030. Korea and Taiwan have Samsung and TSMC, but they are tech stocks, which will be out of favour. Reliance is our Indian candidate, and its market cap only needs to treble to reach $500 bn. ICBC and Ping An represent China.
Japan is the wild cart. If this market gives us the long-awaited rally, then it could once again, feature on the list. After three decades of sluggish returns, this most impressive country could remind us how it’s done. We’ve chosen Toyota who will show case their hydrogen cars at the 2020 Olympics and lead the clean transport revolution. And just for fun we’ll add a Japanese bank. Mitsubishi UFJ wins the contest. With a market cap of just $72 bn. It trades at just 40% of book but has a whopping $2.9 tn of assets. Worth a shot.
It is said that elephants don’t gallop. A Ned Davis Research piece studied the returns from investing in the most valuable US company between 1972 and 2014. The US market rose by nearly 5,000% over the period, while the largest stock strategy returned by a measly 400%. Whatever your plans are for this list, be sure that it is more interesting than it is useful. That is, unless you are a short seller. Dramatic change is the only certainty we have.
From all at AHFM, we wish you a Merry Christmas.