Morningstar - Fall 2019 - 47

A Globalized World
The Morningstar Revenue Atlas illustrates
economic interdependence.

MORNINGSTAR INDEX INSIGHTS

Dan Lefkovitz

Though national equity market indexes
are often cited as barometers of their country's
economic health, markets and economies
are very different things. An equity market
is a collection of individual companies
whose fortunes are shaped by forces macro
and micro, fundamental and technical, domestic
and foreign. In today's globalized economy,
76.90-93.43
the country where a company is domiciled
or
61.05-75.95
50.92-60.12
listed does not necessarily tell you where
29.04-49.45
it does its business.
10.48-28.64

A recent study by Morningstar's manager research
team illuminates that point.1 (See "A New
Diversification Tool," Page 68, in the Summer 2019
issue.) The study explores Morningstar's
new Revenue Exposure by Region data set, which
leverages annual and semiannual filings for
publicly listed companies trading on major
exchanges in North America, Europe, Australia,
and New Zealand, as well as firms listed
elsewhere with market capitalizations exceeding
$100 million.2 It analyzes markets and investments by both Revenue Exposure by Region and
domicile, and the comparison reveals that
traditional domicile-based measures do not
capture the geographic diversity inherent in most
companies' revenue streams.
The Morningstar Revenue Atlas3 builds on that
study by applying the data set at the national

National or International?
Some national markets are not all that national.
Countries that fall under the emerging-markets
umbrella tend to be domestically focused.
But developed European markets in particular are
notably outwardly oriented ( EXHIBIT 1 ).

Indonesia, with its populous domestic market,
tops the inward-looking list. An estimated
93% of revenue from its index constituents is
sourced domestically. The Morningstar China Index
sources an estimated 87% of its revenue
domestically, which may seem surprisingly high
for an economy known as export-driven. But
more than 25% of its index's weight is consumed
by Tencent TCEHY and Alibaba BABA, which
are domestic players; financial-services
companies, which tend to be domestically focused,
also are a big stake. Turkey and Brazil are
similarly domestic.

equity market level, using Morningstar's 46
country-specific equity indexes. These indexes are
members of the Morningstar Global Markets
Index, which includes developed and emerging
markets and represents roughly 97% of
global equity market capitalization. The report
views these indexes through the lens of
revenue exposure, and the results paint the picture
of an economically interdependent world.

EXHIBIT 1

Morningstar Country Indexes by Domestic Revenue Exposure
Portfolio Score (%)

76.90-93.43

61.1-75.95

50.92-60.12

29.04-49.45

Sweden 24.5%
U.K. 29.0%
Canada 53.0%
France 21.3%

10.48-28.64

Finland 18.0%
China 87.3%

Netherlands 13.4%

Japan 60.1%

Germany 24.9%

S. Korea 39.2%

Switzerland 10.5%
Turkey 82.2%

United States 65.9%

Taiwan 29.4%
India 68.4%
Indonesia 93.4%
Australia 51.0%

Brazil 80.3%

New Zealand 53.5%
Source: Morningstar Direct. Data as of 03/31/2019.

1 Whitelaw, T. Lucas, A., Greengold, R., Boyadzhiev, D., and Malseed, M. 2019. "A New Perspective on Geographical Diversification," Morningstar Manager Research, February.
2 For full methodology, see: Morningstar Manager Research. 2018. "Morningstar
Global
Portfolio Score
(%)Geographic Segment Methodology," Nov. 13.
3 Lefkovitz, D. 2019. "Many National Equity Markets Are Not All That National. Revenue Exposure Data at the Country Index Levels Reveals a Globalized World." Morningstar Revenue Atlas, May 21.

65.92

29.88-65.91

18.63-29.87

10.63-18.62

0.36-9.16

Russia 2.0%
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Morningstar - Fall 2019

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