Lots of power in few hands

Lunching at a Swiss bank the other day, I remarked on how narrow the market had become for global investors. The investment manager, whose outstanding performance record had prompted me to accept the invitation to enjoy Swiss hospitality, nodded vigorous agreement. In his view there were probably fewer than 100 companies in the world that the really big players were prepared to buy. No wonder the Dow Jones Industrial Average was powering ahead, while smaller companies remained in the doldrums.

This set me thinking. The term "multi-national" has achieved a certain notoriety. It smacks of big business, ethically challenged and profits- driven, holding little concern for the small man. In practice this is over simplistic. Multi-nationals usually have the best employee benefits and are concerned with the image they project. But they certainly are "big business" - bigger than probably a lot of people realise.

Sales by the world's 200 largest multi-national corporations make up 28.3 per cent of the world's Gross Domestic Product, up from 24 per cent 14 years ago. The combined sales of these top 200 firms are now greater than the combined GDP of all but the world's nine largest national economies.

Putting it into perspective, Mitsubishi of Japan, which has the largest sales of any company, would be the 22nd largest economic entity in the world, just behind Austria and Sweden, but ahead of Indonesia. If you ranked the world's top 100 economic entities, only 49 would be countries. The rest would be multi-national corporations.

Car manufacturers rank highly. Mitsubishi makes more than cars, but it is joined in the ranks of the world's great by General Motors, 26th in terms of size based upon sales, Ford, ranking 31, and Toyota, 36. Oil companies do well, too. Royal Dutch/Shell is just one place behind Toyota, with Exxon a couple of rungs further down the ladder. Telecommunications companies are a little further down, but have been making up ground fast. Nippon Telephone & Telegraph is just one place ahead of AT&T at 47. This makes both of them bigger than Israel and Greece.

Telecommunications companies are expanding rapidly, yet more than 90 per cent of all people live in a household that is not connected to a telephone line. Even more surprisingly, there are many in the communications business who believe under-developed countries are more likely to move straight to the Internet rather than have telephone systems introduced first. Speaking as someone who is not yet wired, I find this difficult to believe, but you cannot be too sure.

Does this have implications for investors? Well, it shows what powerful concerns some of these global household names are. Many multi-national companies are almost like investment trusts. Maybe there is a common theme in the goods or products they make and sell, but there will at the very least be a degree of geographic diversification that can be useful.

And so it is not surprising that the large investors have been confining themselves to the world's biggest companies. Aside from the greater liquidity present in the shares of these mammoth concerns, they provide a spread of risk that is not necessarily available through buying second or third- tier issues. Moreover, the evidence is that these companies are gaining a large percentage of corporate action, so their prosperity seems assured.

Virtually all of these major multi-national portfolios are located in the US, Japan and Europe. The combined value of the stock markets in all these countries accounts for 84 per cent of total world stock market capitalisation. However, only 14 per cent of the world population lives in these regions.

What investment in these multi-national corporations does allow is access to markets where the stock markets themselves are not easily accessible to the average investor. For example, mainland China and Russia, although they have stock markets, are not areas where private investors are likely to be able to invest with anything other than a very high degree of risk. Yet multi-national companies are very active in these areas and both are fast growing, economically.

American Phoenix, to whom I am indebted for a lot of this information, runs a global multi-national portfolio. Although a big investor in the US under the Phoenix name (American Phoenix is how they style themselves outside the US) they are little known in the UK but are endeavouring to build a reputation here. They gathered this information from a report by the Institute for Policy Studies in Washington on the rise of global corporate power. I think they have hit on an interesting concept.

Brian Tora is chairman of the investment strategy committee of Greig Middleton