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Same Winners, Smaller Pot


Everything is changed, and everything has stayed the same. That has been the pattern across emerging markets in the last year. As in the rest of the world, technology and telecom companies in Asia, Eastern Europe, and Latin America have taken a severe battering. As the global downturn spread, business dried up, and market capitalizations have plunged. But unlike in the developed world, where high rollers like Vodafone Group PLC (VOD) and Intel Corp. (INTC) have lost their rankings, tech and telecom companies continue to dominate emerging market bourses, together with a few oil and gas concerns taking advantage of high petroleum prices.

Seven of the top 10 companies in this year's BusinessWeek list of the largest emerging market companies by market capitalization were carryovers from 2000, as compiled by Geneva-based Morgan Stanley Capital International Inc. At the top of the list for a second consecutive year was China Mobile (Hong Kong), followed by Taiwan Semiconductor Manufacturing Corp. (TSM), oil company Petrobras of Brazil (PTBRY), South Korea's Samsung Electronics, and Telefonos de Mexico (TMX). Despite their preeminence, most of these companies lost considerable market value over the 12 months ended May 31. The capitalization of China Mobile (formerly China Telecom) (CHU) dropped to $90 billion from $102 billion. Samsung's value plunged to $29 billion from $47 billion.

Some of the shifts in global economic power come through in the listings. China's profile is rising fast; nine of its companies made the top 200 list, compared with just three last year. Among the new entrants are China National Overseas Oil Corp. (CNOOC), ranked 28, and Hong Kong-listed infrastructure conglomerate Citic Pacific Ltd. (CTPCF), No. 36.

China Mobile is the mainland paragon. Its subscriber base has grown 24%, to 56 million, just since Jan. 1. Profits in 2000 soared 275%, to $2.2 billion, on sales of $7.8 billion. Meanwhile, China's second-largest mobile operator, China Unicom (CHU), joined the ranking this year for the first time in the No. 8 spot, after it went public in June, 2000. If current growth rates continue, China will have more than 150 million mobile subscribers by yearend, making it the world's largest market.

Domestic telecoms can count on protection from foreign competition for at least two years after China is admitted to the World Trade Organization. "That means that foreign companies will have to choose Chinese partners," observes Unicom President Wang Jianzhou.

Elsewhere in Asia, the dip in market caps was accompanied by sharply falling profits. No. 2-ranked TSMC, the world's largest contract semiconductor manufacturer, projects that its net profit will drop by more than half in 2001, to $747 million. Rival United Microelectronics Corp. (UMC), No. 9, projects a loss for the second quarter. Earnings at No. 4 Samsung, the world's largest memory chipmaker, are also down. Analysts project Samsung's net profit for 2001 will be just half the $4.8 billion it earned last year.

BULLISH BEAR. Despite their short-term problems, South Korea and Taiwan remain the lords of emerging markets; together they account for more than 50 of the 200 ranked companies. Future challenges may come from the sleeping bear: Russia's stock market has been by far the top performer in Europe this year, and its top-200 listings rose from four to seven. Some credit goes to President Vladimir Putin, who has made moves to root out the country's oligarchic business practices. He evicted Gazprom CEO Rem Vyakhirev, who, critics allege, had been siphoning off company assets to his family. Energy giant Gazprom, with a market cap of $23 billion, remains far and away the biggest Russian company. Russian firms new to the top 200 include cellular operator Mobile Telesystems (MBT) and minerals giant Norilsk Nickel (NLKNY).

In Latin America, Mexico still dominates, bolstered by high hopes for new, pro-free-market President Vicente Fox. Its bolsa had appreciated 23.2% in dollar terms as of June 25. "Mexico is a safe haven from other problem countries in the region, especially Brazil and Argentina," says Geoffrey Dennis, Latin American equity strategist for Salomon Smith Barney. Among top performers: brewer Grupo Modelo, which rose to 47 from 24.

What will the next 12 months bring? As energy prices ease, expect players like Petrobras and Gazprom to slip. But as long as the Chinese keep dialing up, China Mobile and Unicom look like winners. By Frederik Balfour in Hong Kong, with bureau reports


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