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Investment view

There is a limit to the number of times that I feel capable of incorporating the words “doom” and “despondency” in an article. One of my colleagues wrote last week of the sense of despair evading the market. There is a very alliterative state of affairs around at present, while we are seeing an overuse of some phrases that are meant to capture the moment. If someone else writes about the danger of trying to catch a falling knife, I will know just where to plant one. It feels like time to take a step back and try to look at the bigger picture.

Having something of a predilection for lists, I was encouraged to take my mind off the woes presently assailing equity investors by looking at the latest league table published by Fortune magazine. Fortune is, of course, one of the titles published by the AOL Time Warner Group, whose problems continue as the Securities and Exchange Commission widens its investigation into the accounting practices at its internet division. Perhaps somebody should look at the number-crunching that goes into putting together its list of the world&#39s 500 biggest corporations. Sitting there at number six, up from 16th the previous year, is Enron. I know that this list represents the state of play at the end of 2001 – and they have drawn attention to the irony themselves – but all it proves is history is bunk. Still at least it brings a smile to one&#39s face, something the market is failing to do.

If you ignore Enron (or if you do not for that matter), you will find that six of the top 10 corporations are American. This is, of course, based upon revenues, although I doubt the situation would be vastly different if profits were the chosen measure.

Of the other four, one is British (BP, the highest ranking at number four), one German (Daimler Chrysler – almost American in some ways), one combines British and Dutch nationality (Royal Dutch/Shell) and one Japanese.

This is particularly significant. When this league table was first compiled seven years ago, six of the top 10 were from Japan. It is an indication of how America came to dominate world business as the last millennium drew to a close.

Perhaps more disturbing is the fact that nearly 300 of the 500 reported lower profits last year. This again is an indication of the extent of the economic slowdown and does perhaps explain why investors remain as nervous as they are. Aggregating all the information together, we learn that revenues fell by just under 0.5 per cent between 2000 and 2001 while profits were more than 50 per cent down. Employees, on the other hand, increased by just over 1 per cent.

The world&#39s biggest 500 companies employ nearly 50 million people. Within Europe alone, it is Germany that dominates. The biggest company may be British but six of the top 10 are German. The Netherlands has as much representation as the UK, with its one and a half corporations (sharing, as it does, Royal Dutch/Shell) while France, with the oil giant Total/Fina/Elf, secures the missing slot. But in my mind, the most interesting aspect of this research is the overview of world business it gives. Trends become easier to spot. It makes you wonder what future league tables might tell us.

What this year&#39s survey does not show is what has happened to market capitalisations. My guess is that some of the falls would have been dramatic indeed. You only have to look at the profit figures to realise the damage wrought in some sectors. The two biggest money-losers were Nortel Networks and Vodafone, producing losses of $27bn and $23bn respectively. Looking through the rest of the big money losers, you realise it is the new economy sectors that have seen their earnings evaporate fastest. This must have been reflected in market valuations.

It all helps put into perspective why the market is so unsettled. True, this is historic information and much of the news coming through recently has edged towards the positive side. Abbey National, HBOS, Legal & General and Prudential all increased their half-year dividends – generally against expectations. Perhaps they are whistling in the dark but it is encouraging nonetheless. Insufficiently encouraging, though, to dispel the current disarray. Damn. There goes another “d” word.


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