Any ideas on publicly traded US based companies who import goods from China but are domestic producers and/or sellers?
You’re describing the S&P500.
Is this a serious question?
Right…I didn’t express this very well. The discussion I ment to start was what companies might be in the best position to benefit from the devaluation of emerging market currency. The general upset that continues to come up is “FX headwinds”. I wanted to flip the line of thought to FX tailwinds. Yes, of course there are numerous domestic companies importing, however, perhaps there is a specific business model that would collect the highest percentage of benefit from the prospect of cheaper imports due to latest currency war developments. A part of that model would be how much business that company does in the US compaired to worldwide so the gains made on importing are not erased by the loses of exporting. If we can talk about how cheap oil is benefiting the airlines, why is there not an equivalent discussion based on companies benefiting from a cheaper Yuan?
so again, anybody already put some thought into this?
…also, some other thoughts on narrowing down “the entire S&P 500”…perhaps companies that not only import materials/ goods, but also import the labor would benefit over those who assemble with domestic labor
LL … touche’
I now see what you’re after. In theory this works but there are a handful of reasons why it’s extremly difficult to make this into some sort of (profitable) trade. Even more so difficult with the larger S&P500 global companies who are going to be more sophisticated in their contracting and risk execution.
- Many global companies trade through a middle man. A producer rarely contracts directly with the end buyer. The FX benefit will be retained by the middle man. Think of a company who outsources a process to India, China etc. The company who outsourced it has a contractual price in place with the outsourcer - the outsourcer will be most “exposed” to cost changes
- Goods traders / middle men likely have some sort of FX clause that adjusts pricing up/down based on actual spot rates
- End user buyers may hedge their FX exposure within a narrow band to avoid cost volatility
- Global companies may already trade in USD
The above 3 reasons provide a murky picture of who’s benefiting from EM FX depreciation. I’d look into 10qs of company, specifically the foot notes and management commentary. It’s likely that the benefit you’ll eventually find is already priced into the stock.
You could use Calcbench to find this kind of data. It’s an extremely cool tool. If I didn’t cover an industry with highly standarized data, I’d live in that website
Thanks, that makes sense. I can even see why there are FX headwinds… but not necessarily tailwinds. These headwinds are mostly associated with companies who don’t simply export, but actually set up shop abroad so there is no middleman to muddy it up in their favor. I’ll take a look at some 10Qs anyway, even if only to educate myself more on the matter. I’ll start with Target, since they must be importing from all over, but mostly just have stores in the US (are there even any Canadian stores left?) If anything, knowing who is on the right side of the currency situation might be a good defence in the market to come.
Wait, maybe the trick is to find a foreign company who sets up shop in the US. That would be the inverse situation of the US companies facing FX headwinds by setting up shop abroad. Maybe THATs the FX tailwind I seek. But they would have to be solid all around company… and be public traded… and have a US traded ADR… sigh!
It is only a 3% move in the RMB though. And they have stated in clear words it is about becoming a reserve currency, NOT devaluation to boost exports, and that the RMB might move either way going forward. In reality it might weaken further but not some huge amount that is going to make a sweet trade. Opportunity cost says there are better bets than chasing this one.
^ i concur that the Yuan devaluation will likely be limited, much less so than broad EM. though i do think it’ll devalue more than the consensus currently expects as the 80% Yen devaluation (vs. the USD) since 2012 will continue to put pressure on the Yuan. if Abe keeps on with is current policies, the Yen’ll probably keep falling given time. also, the Won is way down a bit from a few years ago which adds to Yuan pressure.
as for how to play falling EM currencies, it is the usual suspects. most U.S. HQ’d clothing/footwear companies, most U.S. HQ’d electronics companies, etc. these companies are what they are today because of low cost labour so some serious EM currency devaluations will once again make Asian/Carribean labour noticeably cheap relative to home.