The Changing of the Guard

08/06/2009 9:04 am EST

Focus: MARKETS

Nicholas Vardy

Editor, Bull Market Alert, The Alpha Investor Letter, and The Global Guru

Nicholas Vardy, editor of Global Bull Market Alert, says that Old Europe, not the BRIC companies or the US, sits at the top of a prestigious survey of global corporate power.

The inevitable rise of the BRIC economies—Brazil, Russia, India, and China—is now holy writ among the US business press.

[But] while the BRICs offer some of the best investment opportunities, the dominance of the BRICs is still far from today's reality. The BRICs account for 58 companies among the Fortune Global 500. China stands head and shoulders above its rivals, with 37 companies on the list—a gain of nine companies from only a year ago. India has seven companies on the list, while Brazil has six and Russia has eight among the top 500.

That said, even the Chinese companies on the list are hardly world beaters. Most are state-owned behemoths—not known for savvy or innovation. And in 2009, you can still win bets at almost any US bar by betting someone that she can't name a Chinese brand.

And the largest BRIC companies outside China are largely based on natural resources—that is, "trust fund" countries pumping wealth from the ground. The BRICs are still distinctively minor league. Brazil has one company in the top 100, Russia has two, India has zero, and China has five, totaling eight companies from the BRIC countries in the top 100. By this measure, the combined BRICs beat Britain alone—but not France.

With all eyes looking toward the inevitable rise of the BRICs, it's easy to spurn "Old Europe" as a global economic force. [However,] Europe's economy is not only bigger than the US economy, but its companies also rival the United States for corporate oomph.

The economy of Germany, with a population of 80 million people, is the size of China's, and it both exports more and boasts more companies among the Fortune 500 than its Asian rival (39). Throw in France (40), the United Kingdom (26), Switzerland (15), the Netherlands (12), and Spain (12), and the top six European economies boast an impressive 155 companies among the Fortune Global 500. Not bad for a combined population of 266 million—substantially less than the US.

Include the Scandinavian countries of Sweden, Norway, and Denmark, landing nine companies on the list, and you skew the list even further in Europe's favor.

Parsing the Fortune Global 500 rankings offers an important correction to what you hear in the press. First, on a country level, the US still dominate the global economy with 140 US companies, its 30% share equaling roughly the US's share of the global economy. That's twice as many as its nearest competitor, Japan, with 68 companies on the list.

Second, China plays a much smaller role in the real world than it does in your email inbox. Third, and perhaps most surprisingly, European companies outrank the United States—both in the top 100 and top 500 of the Fortune Global 500. Yet, consider how likely it would be that you'd ever subscribe to an investment newsletter that focused solely on investment opportunities in Europe.

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