The Brazilian market index Bovespa is one of the top performing emerging market indices this year. The index is up 142% in dollar terms since the start of this year. Gains are amplified in dollar terms since the local currency Real has appreciated by over 26% this year.
The world’s five largest companies by 2008 revenues are Royal Dutch Shell (RDS.A, RDS.B), Exxon Mobil (NYSE:XOM), Wal-Mart (NYSE:WMT), BP and Toyota (NYSE:TM) according to Forbes. The oil giant Royal Dutch Shell’s revenue totaled $458B while ExxonMobil raked in $425B. The world’s largest retailer Wal-Mart had total sales of $405B. Revenue matters since with high volumes companies can make billions even with a low profit margin. For example, though Wal-Mart’s sales exceeds $400B, its profit margin is just 3.3%. This translates to a cool $13.4B in profits. Despite the low-profit margin, Wal-Mart is one of the top companies in the world and the stock is owned by millions of investors.
One way to reduce the risk of investing in emerging market equities is to go with the largest companies by sales or profit margin. The 25 companies by sales in Brazil in 2008 are listed in the table below:
|S.No.||Company||Sector||Control||Total Sales (US $ Mil.)|
Petrobras and Br Distribuidora are the only state-owned companies in the above list. The oil giant Petrobras (NYSE:PBR) had total revenues of $92B in 2008 and a total profit of $14B. This placed the company in the 25th rank just below StatoilHydro (NYSE:STO) of Norway in the Forbes Global 2000 list. Brazil has 12.6 billion barrels of proven oil reserves, the second-largest in South America after Venezuela according to a report in the Oil and Gas Journal (OGJ). Since Petrobras controls most of the oil production in Brazil, Petrobras holds a strong potential for future growth. Some of the other Brazilian companies in the list include mining giant Vale (NYSE:VALE) and Braskem (NYSE:BAK).
An interesting takeway from the rankings is that 15 of the largest 25 companies in Brazil are foreign-owned. Automakers Volkswagen, Fiat, Mercedes, GM and Ford have a strong presence in Brazil with sales exceeding $6B each in 2008. In addition to GM and Ford, American companies Wal-Mart and Cargill also have strong sales in Brazil. The French retailer Carrefour is well ahead of Wal-Mart in market share and sales.