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In a Decade, the World's Biggest Stock Will Be...By
Monday, November 8, 2010
Ten years from now, the world's biggest stock will almost certainly be... Chinese.
At least that's what my friend and expert Asia analyst Peter Churchouse found when he recently set out to answer that question.
Four of the six companies that came out on top in his "Largest Companies in the Coming Decade" study were Chinese. Only one was American. According to Peter...
A handful of companies in this list could lift market cap by more than three times. A "buy and hold" strategy for some of these giants could produce very solid returns over the decade.
Fortunately, there's an easy way for Americans to own the Chinese giants. I'll share it with you today...
Right now, four of the world's 10 largest stocks are Chinese. A decade ago, that was unthinkable. No Chinese names were even close.
Today, the world's top 10 list of large companies includes names you'd expect – like ExxonMobil (the world's largest), Microsoft, Berkshire Hathaway, and Wal-Mart. The list also includes a couple names you might not expect – like Apple and commodity-giant BHP Billiton.
Rounding out the top 10 are four Chinese companies you probably never heard of. Most of these Chinese companies are near the bottom of the top 10 list today. But if Peter is right (and he used some very basic assumptions), these four Chinese companies could be in the top six in a decade... And one of them could overtake ExxonMobil as the world's largest company.
The four Chinese names are: oil company PetroChina, cell-phone provider China Mobile, and two major banks: ICBC and China Construction Bank.
You can easily own these Chinese names through an exchange-traded fund: the iShares China 25 Index Fund (FXI).
FXI's top three holdings are three of these names. And four of them make up about one-third of this fund.
At first glance, FXI doesn't appear cheap... It's trading at a price-to-earnings ratio of 16.8 and a price-to-book ratio of 2.6. (It pays a 1.9% dividend.) But it doesn't seem expensive at all when you understand the slowest-growing company out of the four increased its sales 15% a year over the last decade.
Peter isn't guaranteeing these names will become the biggest in the world, of course. And we can't know the future. We have plenty of other possibilities to ponder... Peter writes:
Will there be a new Google out there, coming from way behind the curve? Will something out of biotech be the next Google, a product of the genome project? Will we see some emerging market giants come screaming out of the chutes? Will some of the old contenders such as U.S. banks get a new lease of life, and catch the next wave of growth and valuation over the coming decade?
Chances are good for all of those. We can't know what's coming... But based on some simple assumptions, Churchouse suggests the future for Chinese blue-chip stocks is very good over the next 10 years... Invest accordingly.
Good investing,
Steve
Further Reading:
In 2007, Steve recommended PetroChina. Three years later, the stock was trading in the same spot. But Steve's readers pocketed triple-digit gains. "My readers made a fortune in PetroChina – a dead-money stock over the last three years," Steve writes, "by following these two simple rules to keep us in the money." Learn more here: Avoiding the Biggest Mistake Investors Make.
Market NotesNEW HIGHS OF NOTE LAST WEEK
Amazon (AMZN)... Internet retail
BHP Billiton (BHP)... diversified mining
Carnival (CCL)... cruise lines
Denison Mines (DNN)... uranium mining
Enerplus Resources (ERF)... oil trust
Family Dollar (FDO)... dollar stores
Google (GOOG)... search engine
H.J. Heinz (HNZ)... food
Ivanhoe Mines (IVN)... trophy asset
JetBlue Airways (JBLU)... airline
Kansas City Southern (KSU)... railroads
Lorillard (LO)... cigarettes
Marriott International (MAR)... hotels
Nike (NKE)... shoes and clothing
Oracle (ORCL)... software
Pan American Silver (PAAS)... silver
Qwest Communications (Q)... networks
Rio Tinto (RIO)... diversified mining
Starbucks (SBUX)... Big Coffee
Tiffany & Co. (TIF)... Big Diamonds
Uranium Energy Corp (UEC)... uranium
Viacom (VIA)... entertainment
Whole Foods (WFMI)... expensive groceries
Xerox (XRX)... printers
Yum Brands (YUM)... fast food
Zoll Medical (ZOLL)... medical devices
Gold, Silver, Copper, Sugar, Coffee, Corn, Soybeans, Cotton, Crude Oil
NEW LOWS OF NOTE LAST WEEK
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