U.S. automakers, parts suppliers looking past devaluation
For many U.S. companies and investors, the volatility in world markets this week, following Beijing's surprise currency devaluation, presents the challenge of balancing the country's current uncertain economic prospects against the hope for long-term growth from the world's most populous nation.
China this week devalued its currency against the U.S. dollar, after more data showed its economic growth is slowing.
Investors globally reacted harshly, dumping shares of companies with significant amounts of revenue derived from China, particularly automakers and luxury goods makers.
For the most part though, U.S. manufacturers and the fund managers investing in them say they are looking beyond short-term investor anxiety to long-term demand.
Ford Motor Co.'s head of global purchasing, Hau Thai-Tang, said Wednesday that the company remains "bullish on China" despite a recent drop in auto sales. (See related story in this newsletter.)
General Motors told investors this week that it still expects strong results from China, the company's largest market by vehicle sales, and that it did not expect the yuan's devaluation to have a material impact on its financial results.
GM builds in China most of the cars it sells in the country, creating what automakers call a "natural hedge" against currency volatility.
Executives at the automaker said last month they see China's auto sales growing over the next decade to about 35 million vehicles a year, compared to about 20 million annually now.
Shareholders, however, have taken a sharply different view, selling shares since Monday. GM shares are down about 5 percent since Monday, and are now nearly 9.0 percent below an important benchmark, their $33-a-share initial public offering price. Ford shares are down about 3 percent since Monday.
Standing by their bets
Despite falling stock prices, fund managers contacted by Reuters who had large positions in U.S. companies dependent on China for revenue growth said that, while they were not cutting ties yet, they remain wary.
"I'm still a bull. I think long-term we'll see a lot more stimulus, building bridges and infrastructure to build demand like they did in the past," said Gary Black, co portfolio manager of the Calamos Hedged Equity fund.
Chris Carter, portfolio manager of the $442 million Buffalo Growth Fund, meanwhile, said he has sold some auto parts suppliers that do a lot of business in China, though he declined to name them.
By contrast, U.S. auto parts makers could benefit from a cheaper yuan to the extent that they export components from China to customers in the U.S. or Europe, but it could also make vehicle parts made by Chinese rivals more competitive.
Johnson Controls Inc., which is spinning off its automobile components businesses, plans to "closely monitor these currency movements and related China growth projections," company spokesperson Fraser Engerman told Reuters. However, he said, the devaluation "has no impact on our commitment to grow our business in China both long-term and short-term."
Still, JCI shares are down about 5 percent since Monday.
Investors globally reacted harshly, dumping shares of companies with significant amounts of revenue derived from China, particularly automakers and luxury goods makers.
For the most part though, U.S. manufacturers and the fund managers investing in them say they are looking beyond short-term investor anxiety to long-term demand.
Ford Motor Co.'s head of global purchasing, Hau Thai-Tang, said Wednesday that the company remains "bullish on China" despite a recent drop in auto sales. (See related story in this newsletter.)
General Motors told investors this week that it still expects strong results from China, the company's largest market by vehicle sales, and that it did not expect the yuan's devaluation to have a material impact on its financial results.
GM builds in China most of the cars it sells in the country, creating what automakers call a "natural hedge" against currency volatility.
Executives at the automaker said last month they see China's auto sales growing over the next decade to about 35 million vehicles a year, compared to about 20 million annually now.
Shareholders, however, have taken a sharply different view, selling shares since Monday. GM shares are down about 5 percent since Monday, and are now nearly 9.0 percent below an important benchmark, their $33-a-share initial public offering price. Ford shares are down about 3 percent since Monday.
Standing by their bets
Despite falling stock prices, fund managers contacted by Reuters who had large positions in U.S. companies dependent on China for revenue growth said that, while they were not cutting ties yet, they remain wary.
"I'm still a bull. I think long-term we'll see a lot more stimulus, building bridges and infrastructure to build demand like they did in the past," said Gary Black, co portfolio manager of the Calamos Hedged Equity fund.
Chris Carter, portfolio manager of the $442 million Buffalo Growth Fund, meanwhile, said he has sold some auto parts suppliers that do a lot of business in China, though he declined to name them.
By contrast, U.S. auto parts makers could benefit from a cheaper yuan to the extent that they export components from China to customers in the U.S. or Europe, but it could also make vehicle parts made by Chinese rivals more competitive.
Johnson Controls Inc., which is spinning off its automobile components businesses, plans to "closely monitor these currency movements and related China growth projections," company spokesperson Fraser Engerman told Reuters. However, he said, the devaluation "has no impact on our commitment to grow our business in China both long-term and short-term."
Still, JCI shares are down about 5 percent since Monday.
