The talk of deglobalisation is everywhere – except in the data.
Australian firms obtained about 49 per cent of their revenue from abroad. That's up from 45% last June. It follows a thread and needle approach,” said Michael Wu, an Asia Pacific analyst. Considering the geographic revenue segment data for the 268 constituents of the Australia Index, a broad-based measure that accounts for 97 per cent of Australian equities by stock market value companies are just looking beyond borders, he said.
Australia is not alone in this respect. When we looked at the sources of geographic revenue for 48th national equity market indexes, we discover that in the last year most have become less domestic. Countries the world over, in terms of region, size or development status, grew at global connections compared with this time last year.
Pure globalism now plays against the grain of the ready story. We inhabit a “postglobal world,” as the title of a new book puts it, in a movement toward “localization.” One recent issue of The Economist is all about “Reinventing Globalisation.”
“Offshoring,” a vogue concept in the 1990s and 2000s, is the dirty word now, while “onshoring,” “reshoring” and “slowablization” are cool kid faces. Even before the pandemic, inflation and a war in Europe exposed the deficiencies of global supply chains, political tides had shifted against globalization. Independence and self-reliance are on the rise.
Crossing Borders to Follow Opportunities for Profits
In order to figure out what’s going on, simply keep in mind the truism that stock markets are markets of stocks. At a market level, trends are a product of the behavior of the companies that comprise them.
Take PepsiCo in the consumer defensive sector, as an example. Pepsi’s sales of fizzy drinks and salty snacks outside the US grew faster than its domestic business in 2021. Like most companies, Pepsi does not detail every source of global revenue. What is certain is that Russia will not be one of Pepsi’s most important markets when it reports for 2022. The company withdrew from the country following the invasion of Ukraine.
Pepsi is one of numerous international behemoths working here in the largest equity market in the world. Indeed, many of the world’s largest public companies, such as Microsoft, Alphabet, Meta Platforms and Nvidia, generate a majority of their revenues from outside the US.
The US stock market sourced 62% of its earnings domestically in June, versus 63% a year earlier.
Emerging are most domestic, Europe most external
The four largest equity markets in the world – the US, Japan, the UK, and China – all now generate a larger proportion of revenues from overseas than they did one year ago. None of the shifts were tectonic. Japan dropped from 57% domestic a year ago to 55% this year. The U.K. fell from 27% to 25%, and while China dropped from 91% to 90%.
And emerging markets like Egypt and Pakistan as well as established ones like China, Peru, Indonesia, the Philippines, and Persian Gulf states are still the most domestically focused. China Index devotes some 90% of its revenue to China, does so on account of significant domestic exposure from its top names such as Tencent, Alibaba, Meituan, China Construction Bank and JD.com.
The world’s most outward-looking markets are still those in Europe. Aside from Greece a relative exception because its companies are predominantly domestic Europe’s markets are overwhelmingly populated with global companies. The most diversified is also the most global Switzerland Index (which has Nestle, Roche and Novartis), which derived an estimated 30 percent of its revenues from the US. The Netherlands Index collects more revenue from Taiwan (roughly 13%) than the Netherlands (10%), just as the Germany Index sources more revenue from China than Germany.
It’s not just the commodities boom
Economic sectors do not emerge as strong change drivers from last year. For instance, some resources-rich countries got more global, such as Australia, Brazil, Chile and the United Arab Emirates; others, such as Canada, Peru, Saudi Arabia, Norway, South Africa and Qatar did not. The market for resources is global, of course, so producers might be anticipated to boost international revenues in a time of high prices and heavy demand.
There was no clear trend in technology-heavy markets either. The world’s ho-hum second half of the global rankings featured the US, Korea, and Germany, all of which have lots of tech representation. Taiwan, the Netherlands, Israel and India did not.
Canada gets close to half of its revenue from outside of our markets. It is a resources-rich market, dominated by handful of big banks, and with an economy and population that is similar to Australia’s. But while Canada derives some 30% of its revenue from the US, China is Australia’s largest external market at 13%. Only Taiwan (18 per cent) and Hong Kong (17 per cent) are more reliant on Chinese revenues.
The lines between domestic and foreign become blurred by sources of revenue
That equity markets are globalizing is also squarely at odds with the story that supply chains are onshoring, and countries are seeking self-sufficiency. But the stock market isn’t the economy. There are only pieces of the puzzle when it comes to where public companies earn their money. There are many other ways to gauge economic globalization the most obvious being trade as a share of gross domestic product.
Nationality crossing borders with it even if the companies headquartered in your own country, investors’ sources from revenues have been going global. Yes, global exposure can often be achieved through local companies, but leading companies within an investor’s home market may also be based outside of that market. As always, a global portfolio gives you the widest range of opportunities.
