Hi CB, <<>... USD ... down against ...HK's ... trading partners except China<
That's a pretty big "except," isn't it?>>
Yes. Thus trouble for world and particularly storm for SE Asia, and East Asia.
<<Yuan to US dollar is 8.277. When the dollar gets weaker, what happens to the yuan?>>
Yuan to Taiwan Dollar is about 1:4.25, to JYen is approximately 1:15, and to Thai Baht is near 1:5.
When the USD decreases x/y/z% against the Taiwan, Japan and Thai currencies, the Yuan will maintain 8.277 relationship with the USD and adjust accordingly against Taiwan, Japan and Thai by x/y/z% respectively, taking more of their factories and exports even as US imports less.
This is a viable script with effortless sustainability for China because China has the domestic market needs, labour, technology, resources and political leadership, all wrapped in a rapidly reforming and self sustaining continental economy, and thus the danger for the rest of the economies mired in the old ways and still dependent on export.
One way out is for companies in these economies to become marketing agents, investors and suppliers to China based manufacturing.
Another way out is to change focus ... i.e. Thailand will become resort central and retirement city.
A third way out is to buy weapons and try to duke it out.
There are domestic impetus in Japan for all three approaches, in Taiwan for the first approach, and in Korea and Thailand for the first two approaches.
<<difference between the yuan and the RMB?>>
RMB stands for Ren Min Bi, for People's Currency, and Yuan is a unit, as in One Yuan of RMB. The Japanese Yen and Korean Won is the same character.
Chugs, Jay
P.S. Relevant article or what passes for investment alert these days ...
online.wsj.com
May 20th, 2002
Dollars to Doughnuts
As with so many things, a little drop, but not a big one, would be good for the greenback
By JACQUELINE DOHERTY
After appreciating by nearly a third in the past seven years, the dollar is starting to look a little tired. In just over two months, the greenback has fallen 5% against the euro and 6.7% against the yen. Some economists believe this could be the start of a gradual weakening that may continue over the next year or more. If so, investors may want to rethink their approach to the markets. A falling dollar would help U.S. companies that derive a large portion of their revenues from abroad. And for dollar-based investors, overseas investments may look more attractive.
The key question, however, is whether the currency's decline will be gradual or abrupt. "A little bit of dollar weakness would be a good thing for the world economy. But there's a very fine line, and too much of good thing can be a bad thing," warns Knut Langholm, an emerging-market-debt portfolio manager at State Street Research & Management. A 10%-15% fall over the next year or so would be beneficial, but a drop of, say, 30% could raise the specter of rising U.S. inflation and interest rates, which would be bad news for stocks and the economy.
The dollar has shifted direction for a number of reasons, notably a marked cutback in foreign buying of U.S. stocks and bonds. In January and February, overseas investors bought $26.7 billion of U.S. equity and fixed-income securities, down sharply from nearly $100 billion in the year-earlier period. Their reduced enthusiasm for U.S. assets apparently reflects the punk returns U.S. markets have provided global investors in recent years.
They also may be turned off by a perceived change in U.S. policies. While former Treasury Secretary Robert Rubin would endlessly repeat his mantra in favor a strong buck, his successor, Paul O'Neill, insists the markets set exchange rates and has cast doubt on the worth of intervention. U.S. manufacturers also have been clamoring for a lower greenback to make them more competitive, and have been able to gain tariff protection for steel.
U.S. assets also are looking pricey. Based on what it will buy in goods, the dollar itself is expensive. In addition, European and Asian stocks sell at lower price/earnings multiples than do their U.S. counterparts, making some investors view non-U.S. stocks as less risky. Moreover, the gap between American and European economic growth has narrowed, further reducing the relative allure of U.S. investments. Morgan Stanley forecasts 2.8% real growth in U.S. gross domestic product this year and 1.4% in the Eurozone. Next year the growth gap shrinks substantially, with 3.7% forecast for the U.S. and 3.1% for Europe.
The slowdown in global merger and acquisition activity has been equally marked, with far fewer foreign takeovers of U.S. corporations. Overall, global M&A announcements dropped to $14 billion in April, making it one of the slowest months in the past five years, according to Joseph Quinlan, a senior global economist at Morgan Stanley. In addition, there are also fewer deals involving the purchase of U.S. companies. In the first four months of 2002, the U.S. accounted for only 14% of announced global M&A inflows, versus about 30% last year.
Considering that foreign companies probably have had to write down the value of U.S. acquisitions made before the bubble burst, their lack of appetite for new American deals is understandable. "You used to be a hero for doing mergers. Now, you're a scapegoat," observes Quinlan. Add to that the various accounting scandals that have made headlines, and it might take a while for foreign CEOs to risk making deals in the U.S.
Reduced demand for U.S. assets has become a concern because of the need to fund the massive deficit in the current account, the broadest measure of international transactions. The U.S. current-account gap is running close to 5% of GDP, a level that a Federal Reserve study found typically leads to a depreciation of a nation's currency by 10%-20%, notes Gail Dudack, chief investment strategist at Sungard Institutional Brokerage. The currency adjustment also involves typically three years of sluggish economic growth -- not a pretty portent.
Like most analysts, Morgan Stanley's Quinlan expects a gradual decline in the dollar. He sees the euro rising to 95 cents from about 92 cents currently and a low of 86 cents in late January. He also looks for the yen to trade at 130-125 to the dollar, compared with 126 yen currently, but stronger than the 135 level three months ago, despite Japan's continued economic woes. "If we're right about an orderly decline in the dollar and stronger global growth, that's a good environment for large-cap, multinational companies," he says.
Companies that may benefit the most from a weaker dollar are those that generate most of their revenues overseas. As the dollar weakens, a multinational converts stronger euros, pounds or whatever into more dollars. Above is a list of the 25 companies in the Standard & Poor's 500 that derive the greatest percentage of their total revenue from foreign sales. The list, provided by ISI Group, includes mostly mega-cap names. The biggest companies typically have bigger global presences than mid-to-small-cap stocks, which have outpaced their larger brethren in recent years. But if the buck keeps faltering, big-cap names could be back in favor.
Table: Favorable Exchange
The industry sectors with the most to gain from a weaker dollar are technology, with 45% foreign-sales exposure, and energy companies, which reap 33% of sales abroad. Hence, names such as Motorola and Texas Instruments top our list. ISI's survey of tech companies also has recently shown a pickup in spending, notes Jason Trennert, an ISI investment strategist. The improved survey results, the weaker dollar and the decline in stock prices has Trennert considering shifting to a neutral stance on tech shares from his current underweight position. Not exactly the makings of the next raging bull market, but a favorable change in direction.
U.S. industrial companies that have had a tough time competing with foreign outfits could also benefit from a weaker dollar. Steel and car companies are among the first to come to mind; hence their lobbying for a drop. The areas with the least to gain from a weaker dollar include the financial, utility and telecommunication-service sectors, which each generate under 10% of their revenues abroad.
To be sure, investors need to go beyond looking at foreign-sales exposure before judging whether a stock will reap rewards from a falling dollar. Some analysts note, for instance, that foreigners have been big buyers of U.S. large-cap stocks as the dollar was rising. If they begin selling U.S. assets, large caps, with their higher P/E multiples, could suffer.
Foreign markets also may grow more attractive to American investors in a weaker-dollar environment. As with U.S. multinationals, an investor buying foreign securities will benefit from an appreciation in the foreign currency as well as any gain in the security's price. "I think a lot of U.S. investors have about 5% or less of their portfolio in international equities," says Nicholas Sargen, global markets strategist at the J.P. Morgan Private Bank. A more normal level of international diversification would be about 10%-15%.
When looking overseas, investors should consider emerging markets, says State Street's Langholm, the emerging- market investor. He believes a weaker dollar is consistent with increasing commodity prices, which would benefit those emerging markets where commodities are produced. As a result, he believes that high-quality emerging-market bonds will return their coupons of 10% or so to investors. A weaker greenback and stronger euro would lessen inflation fears in Europe, just as the stronger dollar has helped reduce U.S. inflation. If that comes to pass, the European Central Bank might be less likely to raise rates. European government bonds, which yield about the same as Treasuries, would stand to benefit.
As noted, the consensus sees the dollar falling only moderately, perhaps just 10% or so. But the fear is that the decline could be more precipitous and disruptive. If so, inflation could rise as imports become dearer and domestic producers have more leeway to hike their prices. Interest rates also could increase. The U.S. bond market, a major magnet for foreign capital, could push yields higher if that source of funds departs. And the Fed also might be forced to tighten to offset imported inflation. Either way, it could be bad for the economy and stocks.
"There's generally a belief that the U.S. is the leader in the global economy. So there is an unwillingness to sell the dollar short," explains Trennert. That view has generally benefited the U.S. economy and financial markets, albeit at a cost to certain sectors. A gradual reversal could mitigate those negatives, but a swift one could eliminate the positives.
May 20th, 2002
Favorable Exchange
These S&P 500 companies have the highest percentage of foreign sales, so they should benefit from a weaker dollar.
Company Foreign Sales As a Percent Of 2001 Sales
Nvidia 89.4%
Motorola 79.2
Tupperware 78.9
Exxon Mobil 77.8
Aflac 77.6
Texas Instruments 72.1
Applied Materials 71.0
Avon Products 66.1
Adv'd Micro Devices 65.9
Qualcomm 64.8
Intel 64.6
McDonald's 63.7
Halliburton 62.9
AES 62.2
Colgate-Palmolive 62.1
Coca-Cola 61.6
Compaq Computer* 61.6
Baker Hughes 61.3
Waters 59.8
IBM 59.0
Hewlett-Packard* 58.4
William Wrigley Jr. 58.2
Dow Chemical 58.2
Gillette 58.1
NCR 56.9
*Prior to merger |
