The hidden worries of US stocks' overseas operations under the tide of globalization "ebbing" - Seven questions about the operating conditions of US stocks overseas

Core viewpoint In the context of US tariff policy, the discussion of global "de-dollarization" is becoming more and more intense. This article depicts the picture of overseas business of US-listed companies from the perspective of large enterprises: 1. Large enterprises have overseas business accounted for 30%, higher than small enterprises (20%). 2. The industries with the largest exposure to overseas business are technology (51%), materials (38%), healthcare (35%), and communication (34%), among which technology and communication industries account for nearly half of the market value of the S&P 500; among these industries, the growth rate of communication overseas business has been generally higher than the overall revenue growth rate since 2017, making it the industry with the highest dependency on overseas business. 3. The proportion of overseas income of S&P 500 weighted stocks is generally higher than the industry average, and the profit margin of overseas business is also higher than the domestic one (for example, in 2024, Apple's overseas income accounted for 57%, industry average 51%, overseas profit margin 42%, overall profit margin 32%; Amazon's overseas income accounted for 39%, industry average 27%, overseas profit margin 17%, overall profit margin 11%); indicating that the dependence of US giant companies on overseas operations is relatively high. 4. Among the S&P 500 companies that disclose their China business, the proportion of revenue from technology and communication industries (25%) is higher than the overall average (17%), but in the past two years, the revenue from China has grown slower than the overall, especially Nvidia's revenue from China has decreased and the growth rate of revenue from China has been significantly slower than the overall, which may be related to the recent US regulations on the technology industry in China. Therefore, if tariffs lead to further de-dollarization, it may have a significant impact on US-listed companies' overseas business, which may further impact the performance of US stocks, especially weighted stocks. Report Summary Q1: How high is the proportion of overseas revenue for US stocks? 2-3 tenths, higher for large enterprises than small enterprises The proportion of non-US income in the S&P 500 index is about 30%; while the proportion of non-US income for small US companies (represented by the Russell 2000) is relatively smaller, about 20%. Note: 1. Considering that the proportion of regional division by continent is higher in US stock financial reports, the proportion of revenue excluding the Americas is calculated as the proportion of overseas revenue, and the term "overseas business" below also refers to the situation excluding the Americas; 2. Based on data from 2024, companies that disclose non-US income account for about 83% of the total market value of the S&P 500, showing a high representativeness; while this proportion is 43% for the Russell 2000, indicating relatively lower representativeness. Q2: Which industries have the largest exposure to overseas revenue? Technology, materials, healthcare, communication Further breaking down the proportion of non-US revenue in each industry of the S&P 500, it can be seen that the technology industry has a proportion of non-US revenue of over 50%, making it the industry with the largest exposure to overseas revenue; materials, healthcare, and communication industries all have a proportion of non-US revenue of over 30%. Technology and communication are the two largest industries in terms of market value within the S&P 500 index, accounting for almost half of the total market value, so the key industries of US-listed companies also have a relatively high dependency on overseas business. Note: Companies that disclose overseas business in the technology, materials, healthcare, and communication industries have market values that account for over 70% of the industry proportion, showing high representativeness. Q3: Are weighted stocks heavily dependent on overseas business? More than half are higher than the industry average Looking at individual stocks, we have separately calculated the proportion of non-US business for the top 5 market value companies in the main industries of the S&P 500 index. In the leading enterprises, more than half of the companies have a proportion of overseas business higher than the industry average. In the technology industry, Apple (57%), Nvidia (56%), and But'one Information Corporation, Xi'an (75%) have a proportion of non-US business higher than the industry average (51%); In the communication industry, Alphabet (46%), Meta (56%), and Netflix (43%) have a proportion of non-US business exceeding the industry average (34%), showing that communication industry giants generally have a higher dependency on overseas business. In the healthcare industry, Johnson & Johnson (43%) and Abbott Laboratories (61%) have a proportion of non-US business higher than the industry average, and the proportion remains stable. Q4: Which markets, Europe or Asia, are more important? Almost equally important Overall, the proportion of income from Asia and Europe in non-US income is around 45% and 40%, making them the most important sources of overseas income. When looking at industries, in the technology and energy industries, the proportion of income from Asia is 59% and 60%, significantly higher than from Europe; while in the consumer essentials, non-essentials, and financial industries, the proportion of income from Europe is 56%, 64%, and 65%, respectively, much higher than from Asia. Note: Here, we further analyzed data from companies that simultaneously disclosed income from Asia and Europe, accounting for about 17% of the total market value of the S&P 500; the proportions of technology, industrial, and materials industry market values are about 33%, 22%, and 17%, respectively, suggesting that the data is not particularly representative and only objectively presents the situation of companies that disclose the relevant data. Q5: Whose growth is faster, domestic or overseas? Communication industry's overseas revenue growth is faster Looking at the overall situation of the S&P 500 individual companies that have disclosed non-US income, the growth of non-US income from 2023 to 2024 is generally higher than the growth of total income, indicating a greater reliance on overseas income overall. From an industry perspective, the communication industry has the highest dependency on overseas income, with non-US income growth consistently higher than total income growth (excluding 2020); the materials industry also saw higher non-US income growth from 2023 to 2024 compared to total income. Note: Companies that fully disclosed non-US income from 2016 to 2024 accounted for about 61% of the total number/market value of the S&P 500 component stocks; by industry, the proportion of companies that disclosed overseas business in the technology, materials, healthcare, and communication industries is over 50%, showing a high representativeness in the analysis of overseas business conditions. Q6: Are profits higher from overseas business? Profit margins in some industries are higher than in the domestic market The profit margins of overseas business in the consumer essentials, non-essentials, materials, and technology industries are higher than those from the domestic market. Calculating the operating profit margins (operating profit / operating income) of overseas business for each industry, it can be seen that the average operating profit margins for overseas business in the consumer essentials, non-essentials, materials, and technology industries are 37%, 23%, 25%, and 33%, respectively, all higher than the overall average.The average operating profit margin (16%, 18%, 17%, 20%), that is, the profit margin of overseas operations is higher than domestic operations.48%) 77% of the total market value of the industry.In the healthcare industry, Johnson & Johnson (43%) and Abbott Pharmaceuticals (61%) both have a higher proportion of non-US business compared to the industry average (35%), and their proportions are relatively stable. (Note: The market value of the top 5 companies in the healthcare industry accounts for 40% of the total industry market value, with the leading companies having a relatively lower market share.) In the materials industry, Newmont Goldcorp has a 100% overseas business proportion due to all its mines being located overseas, while other industry leaders such as Linde Group (56%) and Air Products (59%) have a higher proportion of overseas business compared to the industry average. (Note: The market value of the top 5 companies in the materials industry accounts for 52% of the total industry market value.) In the industrial sector, the overseas business proportion of the top 5 leading companies in market value is generally higher than the industry average (29.4%), although the overall overseas business proportion of the industry is lower than the S&P 500 constituent stocks average (30.5%). However, the leading companies in this sector have a higher dependence on overseas business (General Electric at 49%, RTX Corporation at 43%, Caterpillar at 37%, Boeing at 44%, Honeywell at 43); but compared to 2016, the overseas business proportion of industrial leading companies in 2024 has generally decreased. (Note: The market value of the top 5 companies in the industrial sector accounts for 20% of the total industry market value, with the leading companies having a relatively lower market share.) Among the top 5 leading companies in market value in the consumer discretionary sector, Amazon (39%), Tesla (51%), and McDonald's (60%) have a higher proportion of overseas business compared to the industry average (27%). (Note: The market value of the top 5 companies in the consumer discretionary sector accounts for 70% of the total industry market value.) Among the top 5 leading companies in market value in the consumer staples sector, Procter & Gamble (52%), Coca-Cola (46%), and Philip Morris (88%) have a higher proportion of overseas business compared to the industry average (27%). (Note: The market value of the top 5 companies in the consumer staples sector accounts for 65% of the total industry market value.) In summary, the proportion of the Eurasian market is nearly equal, with both regions being equally important; in terms of industry structure, the technology and energy sectors have a higher proportion of revenue from Asia, while the consumer and financial sectors have a higher proportion of revenue from Europe. When further analyzing the structure, Asia and Europe account for 45% and 40% of non-US revenue, respectively, being the most important sources of overseas revenue. By industry, in the technology and energy sectors, Asia accounts for 59% and 60% of revenue, respectively, much higher than Europe; while in the consumer discretionary, consumer staples, and financial sectors, Europe accounts for 56%, 64%, and 65% of revenue, respectively, much higher than Asia. (Note: The figures in this report are based on data disclosure by companies and may not represent the entire market or industry.)Limitations, therefore, cannot fully represent the overall situation of the corresponding industry, but can objectively present the situation of companies that disclose relevant data.From the perspective of individual stocks, the overseas business profit margins of the weighted stocks in the above-mentioned industries are generally higher than those in the United States. In the sample of companies that have disclosed overseas business profit data, typical industry-weighted stocks such as Apple (technology industry), Amazon (non-essential consumer goods), McDonald's (non-essential consumer goods), Coca-Cola (essential consumer goods), Walmart (essential consumer goods), and LyondellBasell (materials industry) generally have higher overseas business profit margins than in the United States; that is, weighted companies not only have a higher percentage of overseas business, but also have higher profit margins in their overseas business. 7. Are US stocks highly dependent on Chinese business? Relatively high in the technology and communication industry We further screened S&P 500 listed companies that have disclosed data on their business in China, and from the industry distribution, this mainly includes the technology and communication industry, industrial sector, optional/essential consumer goods, and healthcare industry. The percentage of revenue from China in the technology and communication industry (25.1%) is higher than the overall average (16.5%), indicating that S&P 500 technology and communication companies that disclose their China business are not only more dependent on overseas markets, but also have a higher dependence on China; however, in terms of revenue growth, these companies' revenue from China in the past two years has grown slower than the overall, possibly due to recent US restrictions on the technology industry towards China. The percentage of revenue from China in the consumer goods industry (11.4%) is lower than the overall average (16.5%), but the revenue growth from China is higher than the overall revenue growth, indicating that in the past five years, the revenue growth of these consumer companies that disclose their China business is more dependent on China. Note: There are a total of 55 companies that have disclosed data on their business in China, accounting for 16% of all companies that have disclosed overseas business data, and their market value accounts for 28% of the total. Looking at the industries, the number of companies that have disclosed data on their business in China in the technology and communication, industrial, optional/essential consumer goods, and healthcare industries are 22, 10, 8, and 11 respectively, accounting for 26%, 17%, 12%, and 22% of all companies that have disclosed overseas business data in that industry; and accounting for 38%, 18%, 27%, and 26% of the total market value of the S&P 500. The proportion of companies disclosing data on their China business is not high, so the representativeness of Chinese business in the S&P 500 is not high, and this data can only objectively reflect the situation of companies that have already disclosed data on their China business. Further statistics at the individual stock level on the situation of Chinese business among the Mag7 component stocks show that only three companies - Tesla, Apple, and Nvidia - have disclosed data on their business in China. In 2022-2023, the revenue growth from China of these three companies is mostly faster than the overall growth rate; however, in 2024, the revenue growth from China is slower than the overall growth rate, with Nvidia showing this trend most significantly; at the same time, the percentage of revenue from China is also declining. Looking at the Chinese business situation of the Mag7 component stocks, there is a slight decrease in the impact of Chinese business in 2024. This article is excerpted from the WeChat public account "Yi Yu Zhong"; GMTEight editor: Zhuang Lijia.