Fitch: Yuan Devaluation Holds Mixed Impact for US Corporates
China's slowing economy along with the recent fall in share prices have harmed consumer sentiment and wealth and has already put pressure on US companies' revenue generation in China. This is likely to pose the bigger challenge in the longer-term. Although, if the devaluation ultimately helps the Chinese economy and revives growth, that could actually be positive for US corporates' sales in China.
Negative translation and transaction effects from yuan depreciation can affect a range of US corporates, particularly exporters. Companies selling in China may be impacted and this could be compounded if dollar-based commodities such as pulp and resins are imported for use in the manufacturing process. For the US original equipment manufacturers, the vast majority of the vehicles sold in China are manufactured in that country using locally sourced parts, so the issue is mostly one of currency translation.
In the consumer product sector, sales in China represent 8% of Procter & Gamble's (unrated) revenues and are also likely to be near the same range for Colgate Palmolive Co. ('AA-/Stable') and Kimberly Clark Corp. ('A/Stable'). We believe the negative translation will only add to what has been an already tough year for consumer product multinationals contending with double-digit reported sales declines in Latin America and elsewhere. Still, these types of companies in the Fitch-rated universe have significant financial flexibility at current rating levels.
Beneficiaries of the yuan devaluation will include companies who mainly import finished goods from China. Manufactured items will be less expensive on a US dollar basis. General merchandise retailers and the toy industry will be clear winners. For example, Fitch-rated entities Hasbro and Mattel source more than 70% of toys in China. Retailers - particularly clothing, shoe, furniture, and general merchandisers such as Target, Macy's and Wal-Mart - will also benefit as these companies source a material portion of their products in China.
Costs of China-sourced goods are likely to decline in near lockstep with the currency devaluation percentage, assuming that the production contracts with manufacturing partners are transacted at local currencies at essentially spot rates. If production contracts are at fixed exchange rates but reset at later dates or with blended rates, the benefits will be muted in the short term.
Комментарии