Mondial Chart of the Week: Valuation Disparities
(Source: Momentum Global Investment Management)
Source: Bloomberg & Momentum Global Investment Management
What this chart shows
This chart shows the market capitalisation (in US dollars) of the MSCI United Kingdom index and the combination of Apple and Microsoft, the two largest companies in the world today based on this metric. Market capitalisation, used to reflect the market value of a company, is calculated by taking the share price multiplied by the number of shares outstanding. The MSCI United Kingdom index includes around 100 of the largest stocks in the UK equity market. Earlier this year, the combined value of Apple and Microsoft, which along with other US technology names had been increasing rapidly for the past decade resulting in a greater concentration of these stocks in the US market, exceeded the total value of all companies within this UK equity index. Why this chart is relevant
The valuations of the large US technology companies (of which Apple and Microsoft are two) have caused much debate over recent years and increased demand for passive investment strategies and higher growth stocks (in a low growth world) have only pushed them higher. On one hand, these companies provide the technology and products we all use each day and continued innovation could support further growth going forwards. On the other hand, demand has been so high for this small subset of companies that their valuations relative to the wider market look more extreme than ever today and show them to be priced for perfection. When these disruptive stocks get disrupted themselves, this will change. One thing is certain though, the fact that these two companies alone are worth more than the combined 100 largest stocks in the UK is astounding.