Big Apple Dwarfs Entire Regions

Which matters more, next week’s rumored iPhone 5 launch or the European Central Bank rescue plan expected this Thursday? Speculation about an iPad Mini or the worsening economic slowdown in China?

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Only a wild-eyed camper queuing all night outside an Apple store could argue the tech company’s plans mattered more to the economy. But in purely financial terms, the market value of Apple makes the question less silly.

Apple became the world’s most valuable-ever company two weeks ago. It is worth $624 billion, more than all the listed companies in Portugal, Ireland, Greece and Spain together. The employer of 63,300 people – each valued at $10 million – is more valuable than all the shares available to investors in the MSCI China index , the international benchmark.

Apple is not as big as the domestic Chinese market. But the comparison is not silly: it is more than half as big as the free float of A shares, where foreign investment is restricted.

Investors should care not about the economic outlook, but the starting valuation. MSCI China rose 20 percent in the past 18 years, or 1 percent a year including dividends. As Percival Stanion at Barings points out, this coincided with stunning Chinese growth.

Meanwhile, Apple investors made 27 percent a year, compound. Back in 1994 Apple was only a year away from scrapping its dividend, plunging into heavy losses and defenestrating several chief executives. Investors all but gave up, and its shares were very cheap at just over seven times forward earnings in 1995.

The issue with Apple today is not its valuation (it is at the same forward earnings multiple as the wider market), but the tech sector risk that a rival comes up with the next must-have gadget. Apple’s lawyers temporarily neutered Samsung as a competitor in existing categories. But in the long run Apple will maintain its position only if it comes up with new products worth camping out for. That will not be easy.