5 minute read

Knowing how a company makes its money is key – but knowing where can be just as important. 

When you buy shares in, let’s say, an European company, you get more than just a slice of the local scene. While Paris or Berlin might be the home base, its sources of revenue could spread from New York to Shanghai. Here’s a quick rundown.

Following the money

• US companies love their home sweet home, with 73% of sales coming from the US and Canada. American firms are also leaders in consumer goods, pulling in half their revenues from retail shoppers, rather than government or corporate customers. Of the sales that come from abroad, Europe contributes the most to US firms, at 11%.

• European firms, on the other hand, source most of their revenue from beyond their home market. They’re also more business-to-business savvy, with most sales coming from other companies. And when you zoom in on the sales data, it’s the emerging markets that steal the spotlight, accounting for 31% of the total.

• Japanese companies strike a good balance, leveraging business from both developed (DMs) and emerging markets (EMs). Japanese firms get roughly 57% of their revenue right at home, with the other 43% scattered evenly across DMs and EMs. And they make money both from corporations and consumers in almost equal measure.

• EM firms lean surprisingly heavily on domestic sales, perhaps more than you might expect. The most striking case is probably China, where companies earn a majority of their income domestically; 85% of revenue is homegrown – despite China's dominant role in global exports. It’s a unique economic situation, where the major exporters are often multinationals or unlisted local firms.

As an investor, what’s the takeaway here?

We're living in a world that's more connected than ever, but investment opportunities still vary by region. To build a more diversified portfolio, consider spreading your bets, so you get a good mix of regions and end-consumers. For a single investment that does this for you, check out our General Investing portfolios!

📰 In Other News:A cooler Eurozone and a warmer Tokyo

Overall inflation in the Eurozone fell from 2.6% to 2.2% in August, partly thanks to energy prices. Services inflation, meanwhile, climbed 4.2% – an increase compared to the month before. That’s probably nothing to be too alarmed by: it’s likely to be an economic blip caused by the Paris Olympics. Put together, the European Central Bank (ECB) seems on track for another interest rate cut in September

Of course, inflation doesn’t always follow the program. In the city of Tokyo, the consumer price index (CPI) rose by a higher-than-expected 2.4% in August, more than the 2.2% in July. While this doesn’t translate into inflation for the whole country, the capital city tends to set the tone, backing expectations of more interest rate hikes ahead.

The BoJ has hinted that it might hike rates for the second time this year, but the central bank won’t take that decision lightly. Don’t forget that its recent hike triggered a selloff across global markets, highlighting the far-reaching impacts of its policy decisions.

These articles were written in collaboration with Finimize.

💼 Data in Brief: 2–6 September

Introducing a new section to Weekly Buzz, Data in Brief, a roundup of the week's most impactful economic reports and market-moving data, alongside insights from our Investment Team!

• Monday: China official manufacturing PMI
• Tuesday: US manufacturing PMI
• Wednesday: China Caixin services PMI
• Friday: US labour market report

“Softer manufacturing data out of the US this week point to a cooling economy – further adding to the case for the US Federal Reserve (the Fed) to cut interest rates at its upcoming meeting. But labour market data on Friday will be critical.

It’s the last major insight into the job market before the Fed's decision in September. If data is weak, the Fed might consider a more aggressive 0.5 percentage point cut instead of 0.25. Note that the Fed has a total of three rate decisions scheduled by year-end.”

- The StashAway Investment Team