The Stock Market & Risk: 2010 Best Global Brands
Interbrand released its 2010 Best Global Brands report this week (brand report highlights). This is the 12th year that the report has been published, and we've often wondered if there are deeper insights that can be garnered from this report. We've analyzed the past 12 years of data with a specific eye to the following questions:
- Do changes in brand value predict changes in stock value, or merely reflect information that is already priced in?
- Do the brands with the strongest momentum hold up in recessions?
- Can the report provide insight into the broader market?
Let's take a look at what we found …
1. Do changes in brand value predict changes in stock value, or merely reflect information that is already priced in?
We analyzed changes in brand value along with changes in past and future stock market performance. Specifically, we focused on the top 1/3 and bottom 1/3 performing brands each year based on year-over-year % change. Our hypothesis was that there would be high correlation in the best performing brands also having the best stock performance over the past 12 months. This is true. In every year EXCEPT 2010, the best performing brands also outperformed on the stock market in the prior year. We will return to the 2010 exception below. As for the correlation with brand performance in future years … one would expect that if there is "special insight" from the Interbrand team, brand perfromance could be predictive. We found that there is some correlation of future gains (although a bit weaker). However, we noticed that there is inverse correlation of future performance at times when the business cycle changes. This leads us to question #2.
2. Do the brands with the strongest momentum hold up in recessions?
The answer is complex. Yes, the largest brands tend to retain their brand value over time. For example, Coke, Microsoft, IBM, and Disney have been near the top of the list since inception. However, it appears that those brands that had the strongest momentum leading up to a peak (2000 and 2007) are the very ones which performed the poorest immediately into the recession. As an example, Amazon.com grew its brand value from $1.4 billion in 1999 to $4.5 billion in 2000, only to fall back to $3.1 billion in 2001. Likewise, AIG rocketed up as a new addition in 2007, only to lose brand value in 2008 and fall off the list completely in 2009. In fact, most financials were above average gainers in 2007, before significant drops in 2008.
Ultimately, 12 years worth of data shows this: Strong performing brands continue to gain momentum as long as business conditions remain relatively constant. However, when there are major shifts in business, brand performance works in reverse. This makes sense. Since an excelling brand is built to gain momentum in the current environment, it can be difficult to adapt to sharp changes. This gives opportunity to other large, yet lagging brands, to make some gains on a relative basis.
3. Can the report provide insight into the broader market?
This is where the analysis gets really interesting. In the chart above, we see the negative green bars in 2000 and 2002 which signal changes in the business cycle (the tops and bottoms of the market). In 2007, we again see the signaling of a business peak with the negative green bar. If 2009 was indeed the end of the recession and market bottom, a negative green bar would be a confirmation based on the theory above. However, the green bars for 2008 and 2009 were actually the most...
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Questions and Answers
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