Tuesday, June 29, 2010

China Growth Concern

Stocks and U.S. index futures fell, with the MSCI World Index dropping to a three-week low, on concern that growth in China, the engine of the world’s economic recovery, will slow.

Investor sentiment worsened after the Conference Board said its China leading economic index rose 0.3 percent in April, less than the 1.7 percent gain reported June 15.

Monday, June 21, 2010

Winners and losers from a firmer yuan

China's signal that it will let its yuan currency appreciate is a boost to consumer firms, airlines and insurers, but may dampen the outlook for exporters and commodity producers.The immediate winners from a yuan revaluation would be firms that buy raw materials and other inputs overseas, such as airlines purchasing jet fuel and automakers sourcing parts.Chinese exporters are likely to be the hardest hit. A relatively mild yuan appreciation against the dollar of about 5 percent would cause losses at these companies, according to a Reuters poll conducted at China's top trade fair in April.
China Airlines - Win
China's three top carriers, Air China, China Eastern Airlines and China Southern Airlines, which borrow in foreign currencies to pay for their aircraft but generate revenue in yuan, could benefit the most. Airlines also use dollars to buy fuel.
Automakers - Win
Foreign automakers which sell cars in the world's largest vehicle market, such as BMW, Volkswagen, General Motors, PSA Peugeot Citroen, the Renault-Nissan alliance and Fiat SpA, should also gain.BMW would benefit the most if the yuan continues to rise against the euro — an outcome that's far from certain — as its auto manufacturing joint venture with Brilliance China imports about half its parts, mainly from Germany. BMW shares rose more than 3% in early Monday trade.
Consumers, techs - Win
US firms such as General Electric and Proctor & Gamble are likely to make currency exchange gains when their China profits are converted into US dollars.PC maker Lenovo, which earned 47% of its sales in China in 2009, also reports earnings in US dollars. Lenovo shares were up more than 5% on Monday.
Foreign heavy machinery makers - Win
The world's largest maker of earth-moving equipment, Caterpillar Inc, could be a major winner. The US machinery giant sells billions of dollars worth of machinery and products to China each year. Its group president said on Saturday that Beijing's move would help lift US exports.
Luxury firms - Win
A firmer yuan would likely boost other Asian currencies as a strong yuan is seen by investors as a pledge of confidence for Asia's growth. That should help luxury goods makers, whose imported products will be cheaper across the region, just as more Asians benefit from increased wealth.At the top of the list are those luxury goods companies for whom Asia is a key market, such as Tiffany & Co, Bulgari SpA, Hermes International SCA and LVMH Moet Hennessy Louis Vuitton.
Chinese financials - Win
Chinese insurance companies such as China Life and Ping An Insurance should benefit as a yuan revaluation is expected to boost China's domestic A-share stocks, which account for a large chunk of their investment portfolios.
Foreign retailers - Lose
Big retailers that source from Asia, such as Hennes & Mauritz and Target and Wal-Mart Stores Inc, would see a firmer yuan push up their production costs.It could also hit Walt Disney Co, which has signed a memorandum of understanding to build an amusement park in Shanghai, as it would have to spend more in US dollars to fund investments.
Commodity firms - Lose
China's commodity producers could be hardest hit over the longer-term.Companies such as Aluminum Corp of China, Zijin Mining and PetroChina face dollar-linked prices for their output, but their costs are in yuan.If the yuan does strengthen, these firms would find their revenues falling while their costs remain steady. — Reuters

Wednesday, June 9, 2010