Beware of geeks bearing formulas.
5 years ago someone pointed out to me that one single US tech company - the behemoth internet stock Google – was worth more than ALL the companies listed on the Indonesian stock exchange!
This is an incredible fact: that one single company from the US - which operates in cyberspace and with no “real” assets - is worth more than all the listed Indonesian banks, coal mining companies, CPO producers, retailers, property developers, and telecommunications firms put together!!!
But if you believe this doesn’t make sense, then it could mean two different things.
Either that Google is highly overvalued.
Or that the Indonesian stock market is highly undervalued.
As it turned out, Indonesian stocks were highly undervalued and with the Indonesian economy growing by more than 10 percent annually in nominal terms, Indonesian share prices have made strong gains in the last five years.
So how does the value of Google compare to Indonesia at the end of 2011?
Well, Google had a reasonably good year and its share price rose 6.9 percent, giving rise to a total market capitalization of US$205.2 billion (up from US$192 billion at the end of 2010):
Indonesian stocks, by comparison, gained 6.4 percent over the year in dollar terms. As a result, Indonesia’s market value rose to US$385 billion at the end of 2011, or up from US$346 billion at the end of 2010.
What this means is that Indonesia is now worth 1.87 times Google - and not far below the 2 times level!
NB: the valuations of tech stocks is utterly insane. The estimated value of Facebook for example is put at a mind blowing US$100 billion!!! – up from an estimated US$42 billion 12 months ago. And as for Twitter? That’s worth an estimated US$8.4 billion (up from US$3.7 billion a year ago and more than 30 times Twitter's projected 2012 ad revenues. Huh? How does that old West Ham song go? I'm Forever Blowing Bubbles / Pretty bubbles in the air / They fly so high, / Nearly reach the sky / Then like my dreams…