Comment: Dollar decline reshuffles deck of titans

(Elvis Picardo is an investment strategist with Northern Securities Inc in Vancouver, Canada, and a guest columnist on reuters.com. The opinions expressed are his own )

By Elvis Picardo

VANCOUVER (Reuters.com) -- An analysis of the world's 25 largest companies by market value provides some telling insights into the tectonic shifts shaping global markets. Apart from furnishing concrete evidence of the changing of the guard in the global economy, it also demonstrates the economic value created by the commodity boom. The common thread running between these unrelated trends - the decline in the U.S. dollar.

The United States continues to dominate the ranks of the world's biggest companies, but to a much lesser degree than it did even a decade ago. It now accounts for nine of the Top 25, followed closely by Europe with eight. In 1998, the United States accounted for as many as 18 of the Top 25 companies, followed by Europe with five.

What does come as a surprise, however, is the number of corporate juggernauts spawned in recent years by the BRIC (Brazil, Russia, India, China) powerhouses. China has four companies in the global Top 25, while Brazil and Russia have one company apiece. So the BRIC group (excluding India, which has no representation on the list) collectively accounts for about a quarter of the world's Top 25, a remarkable feat considering that most of these titans are relatively new entrants to the global equity marketplace.

In fact, the world's biggest company by market value is no longer a U.S. icon like Exxon Mobil or General Electric or Microsoft. Since November, that distinction has belonged to Chinese energy giant PetroChina, the first company to top - albeit briefly - the trillion-dollar mark in market capitalization. At its peak late last year, PetroChina's market value exceeded the combined value of the world's second- and third-largest companies (Exxon and GE), and was only a little below the combined $1.2-trillion market capitalization of the 60 largest Canadian companies.

With crude oil trading well over $100 per barrel and prices for many commodities holding near record highs, the fact that nine of the Top 25 companies are in the energy or metals businesses should also come as no surprise. Energy companies have the biggest sector representation, with as many as eight on the list, including five of the world's 10 biggest companies.

There were only a couple of energy companies in the Top 25 in 1998, a year when pharmaceuticals and technology/telecom contributed seven and six companies respectively. In another major shift over the past decade - a period that has been a challenging one for these former heavyweight sectors - only two pharmaceuticals (Johnson & Johnson and Roche Holdings) and four technology/telecom players (China Mobile, Microsoft, AT&T and Vodafone) currently number among the Top 25.

While booming domestic demand and the privatization of former state-owned monopolies in the BRIC group has accelerated the reshuffling of the "global titans" hierarchy, the dollar's decline is a major contributory factor. The greenback's 40 percent drop against a broad basket of currencies since 2001 has not only boosted the market value of overseas companies in U.S. dollar terms, but has also fuelled runaway demand for commodities, many of which are priced in the U.S currency.

Ten years from now, the Top 25 ranking may look very different, and one of the factors driving this transformation will undoubtedly be the direction of the U.S. dollar. Currency moves can play a huge part in determining the global corporate hierarchy. Witness the case of Japan. In 1996, a year after the yen peaked at about 80 to the U.S. dollar, Japan had eight companies in the Top 25; by 1998, with the yen having tumbled 40 percent from its peak, only two Japanese companies remained. Ten years later, Toyota Motor is the sole representative from Japan, despite the yen having gained more than 20 percent over the past decade. In the battle to become the biggest, lost ground is exceedingly difficult to make up.