Middling Kingdom

By S.C., G.S. AND A.R.

CHINA'S significance to the world economy is easy to see but hard to quantify. So in 2010 The Economist introduced the first Sinodependency index, as a rough gauge of China's influence on the fortunes of American multinationals. The index tries to show whether their exposure to the Middle Kingdom is reflected in the performance of their shares.

The latest version of the index, which we discuss in an article this week, includes all of the members of America's S&P 500 that provide a usable geographical breakdown of their revenues. This now amounts to 133 firms. Each firm's weight in the index reflects their market capitalisation multiplied by China's share of their revenues. So a company worth $100 billion that derives 10% of its revenues from China has the same weight in the index as one worth $20 billion deriving half of its revenues from China.

The method has a couple of wrinkles. First, some firms report their China revenues explicitly. Many others only report revenues for the Asia-Pacific region (excluding Japan). In those cases, the index assumes that China’s share of the company's regional revenues matches China’s share of regional GDP. Second, a company's geographical make-up obviously evolves over the course of the year. But firms typically report their revenue shares only once a year in their annual report. To prevent their weights jumping discretely at the end of each year, we've smoothed their revenue shares from one year to the next.

The firms in the index are more dependent on China now than they were when we introduced the index. China accounted for 11.2% of their revenues on average in 2012, compared with 9.8% in 2009. But this increased exposure to China has been of diminished benefit in the past 18 months. This year and last, the Sinodependency index underperformed the straightforward S&P 500. But if it's any consolation, it still massively outperformed China's own miserable stockmarkets.

In the table below, the size of each firm's tile reflects its weight in the index and its colour indicates the industry. The underlying data are here.

The Economist