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British companies exposed to fallout from China's market turmoil British companies exposed to fallout from China's market turmoil
(35 minutes later)
If the fluctuations of the Shanghai stock market seem somewhat removed to some, those on the boards of five of the UK’s largest companies must be feeling every share sell-off, every rumour as if it was in their own backyard. If the fluctuations of the Shanghai stock market seem somewhat removed to some, those on the boards of five of the UK’s largest companies must be feeling every share sell-off, every rumour as if it was in their own back yard.
According to a recent analysis by Citigroup, five FTSE 100 companies - ARM Holdings, Burberry, HSBC, Intertek and Standard Chartered - all generate more than 20% of their sales from China and the far east and as a result fears over an economic meltdown there have been keenly felt in the boardrooms here. According to a recent analysis by Citigroup, five FTSE 100 companies – ARM Holdings, Burberry, HSBC, Intertek and Standard Chartered – all generate more than 20% of their sales from China and the far east, and as a result fears over an economic meltdown there have been keenly felt in the boardrooms here.
These and other companies, both in the UK and across the world, have seen their fortunes linked closely to those of the Chinese markets in recent times. These and other companies, both in the UK and across the world, have seen their fortunes linked closely with those of the Chinese markets in recent times.
In the UK:In the UK:
ARMARM
Shares in the Cambridge-based chip designer have fallen from nearly £12 in June to 902p on Tuesday, down 3.3% on the day, as the markets have fretted about slowing growth in smartphones. Shares in the Cambridge-based chip designer have fallen from nearly £12 in June to 902p on Tuesday, down 3.3% on the day, as the markets have fretted about slowing growth in smartphones. Some 30% of handsets are sold in China, analysts say, making a slowdown there – or, even worse, a crash landing – highly problematic.
Some 30% of handsets are sold in China, analysts say, making a slowdown there - or, even worse, a crash landing - highly problematic.
HSBCHSBC
The bank is so focused on driving profitability in the far east that it is even considering relocating to Hong Kong, where it started out in 1865. It is trying to reverse its slide in profitability by growing in the region, especially mainland China. The bank is so focused on driving profitability in the far east that it is even considering relocating to Hong Kong, where it started out in 1865. It is trying to reverse its slide in profitability by expanding in the region, especially in mainland China.
Although a giant in Hong Kong, HSBC is still a relative minnow in mainland China and a slowing economy can only make such an ambitious task more difficult. Chief executive Stuart Gulliver might not allow the stock market volatility of recent days to deflect him from his strategy but he knows he now has a tougher hill to climb. Shares in HSBC, which started the year at 650p, are trading at 511p. Although a giant in Hong Kong, HSBC is still a relative minnow in mainland China, and a slowing economy can only make such an ambitious task more difficult. Chief executive Stuart Gulliver might not allow the stock market volatility of recent days to deflect him from his strategy, but he knows he now has a tougher hill to climb. Shares in HSBC, which started the year at 650p, are trading at 511p.
BurberryBurberry
The luxury fashion label and retailer, which earlier last year opened a flagship store in Shanghai, is massively tied in to the Chinese economy, with customers from the country accounting for up to 40% of sales. The luxury fashion label and retailer, which earlier last year opened a flagship store in Shanghai, is massively tied into the Chinese economy, with customers from the country accounting for up to 40% of sales.
Shares in the group have fallen gradually over the last three months, largely due to concerns about the severity of the slowdown in China. The shares stood at more than £17 in June and are now trading at £13.87.Shares in the group have fallen gradually over the last three months, largely due to concerns about the severity of the slowdown in China. The shares stood at more than £17 in June and are now trading at £13.87.
BHP BillitonBHP Billiton
The Anglo-Australian mining group’s chief executive Andrew Mackenzie last week said that China has “begun to bottom out” as his group posted a 51% fall in underlying profit because of a slump in commodity prices. The Anglo-Australian mining group’s chief executive, Andrew Mackenzie, last week said that China has “begun to bottom out” as his group posted a 51% fall in underlying profit because of a slump in commodity prices.
Shares in BHP have slumped from nearly £14 in June to around £10, however, partly on fears of a slowdown in the Chinese economy. Mackenzie redeemed himself a little with investors, however, by promising to maintain dividend payouts at current levels. The dividend is currently yielding around 8%. Shares in BHP have slumped from nearly £14 in June to around £10 partly on fears of a slowdown in the Chinese economy. Mackenzie redeemed himself a little with investors, however, by promising to maintain dividend payouts at current levels. The dividend is currently yielding around 8%.
Fraser Jamieson, JP Morgan’s mining analyst, says the sector is most directly exposed to China, given the country accounts for between 40-60% of global demand for commodities. With commodity prices falling - the price of iron ore, for example, has halved within the past 18 months - mining company revenues have been falling too, putting the groups’ commitment to progressive dividend payouts at risk. Fraser Jamieson, JP Morgan’s mining analyst, says the sector is most directly exposed to China, given the country accounts for between 40%-60% of global demand for commodities. With commodity prices falling – the price of iron ore, for example, has halved within the past 18 months – mining company revenues have been falling too, putting the groups’ commitment to progressive dividend payouts at risk.
Standard CharteredStandard Chartered
The share price in the emerging markets-focused bank has declined from nearly 1,100p in June to around 727p at Tuesday’s close, which is probably not the start that new boss Bill Winters wanted when he took over from Peter Sands at the beginning of the summer. Standard Chartered is heavily exposed to the far eastern economies, including China, and this isn’t going to change. In a recent memo to employees Winters repeated the bank would continue to focus on Asia, Africa and the Middle East. The share price of the emerging markets-focused bank has declined from nearly 1,100p in June to around 727p at Tuesday’s close, which is probably not the start that new boss Bill Winters wanted when he took over from Peter Sands at the beginning of the summer. Standard Chartered is heavily exposed to the far eastern economies, including China, and this isn’t going to change. In a recent memo to employees, Winters repeated that the bank would continue to focus on Asia, Africa and the Middle East.
TescoTesco
The retailer is close to selling its operations in South Korea, with three bidders said to have submitted binding bids. Some observers have said the sale process has been affected by the recent global market volatility and the price could come in below expectations after taking into account the slowing of the south Korean economy. The retailer is close to selling its operations in South Korea, with three bidders said to have submitted binding bids. Some observers have said the sale process has been affected by the recent global market volatility, and the price could come in below expectations after taking into account the slowing of the South Korean economy.
Jaguar Land RoverJaguar Land Rover
The relentless rise of the motor group owned by India’s Tata Motors stalled earlier this year after the economic slowdown in China saw sales slump by a third in the far east. The relentless rise of the motor group owned by India’s Tata Motors stalled earlier this year after the economic slowdown in China saw sales fall by a third in the far east. China, which accounts for more than half of Jaguar Land Rover’s (JLR) profits, according to some experts, has seen growth slow considerably. JLR employs around 4,000 people in Coventry.
China, which accounts for more than half of Jaguar Land Rover’s (JLR) profits, according to some experts, has seen growth slow considerably. JLR employs around 4,000 people in Coventry.
Tata SteelTata Steel
The Indian-owned group, which also owns Jaguar Land Rover, has announced plans to scale back production in Llanwern in south Wales in the face of fierce competition from China, as a result of a steelmaking glut which is the result of overcapacity. Unions are predicting that 250 jobs will be axed. The Indian-owned group, which also owns Jaguar Land Rover, has announced plans to scale back production in Llanwern in south Wales in the face of fierce competition from China, as a result of a steelmaking glut that is the result of overcapacity. Unions are predicting that 250 jobs will be axed.
IntertekIntertek
The product testing company generates around 20% of its sales in China and more throughout the Far East. Its shares have been relatively untroubled by the China market turmoil though, trading now around 2,447p, down 88.67p on Tuesday but around the same level they traded at in June. The product testing company generates around 20% of its sales in China and more throughout the Far East. Its shares have been relatively untroubled by the Chinese market turmoil, though, trading now around 2,447p, down 88.67p on Tuesday but around the same level they traded at in June.
International firms with China exposure:International firms with China exposure:
Nearly half of the 48 stocks Citi reckons are most exposed to China are listed in the US and nearly a third are listed in Europe with five in the UK. Industry groups with the highest number of stocks exposed include semiconductors, technology, capital goods, chemical and automotive. Nearly half of the 48 stocks Citi reckons are most exposed to China are listed in the US and nearly a third are listed in Europe, with five in the UK. Industry groups with the highest number of stocks exposed include semiconductors, technology, capital goods, chemical and automotive.
CarmakersCarmakers
Demand for cars in China has been slowing, knocking sales of foreign car-makers. Volkswagen, the German car group, derives around 35-50% of its revenues from China and reported a 12.9% fall in sales of its cars in China in July. General Motors also has a significant presence in China, with 21% of its revenue coming from China, according to Citi. Demand for cars in China has been slowing, denting sales of foreign carmakers. Volkswagen, the German car group, derives around 35%-50% of its revenues from China and reported a 12.9% fall in sales of its cars there in July. General Motors also has a significant presence in China, with 21% of its revenue coming from China, according to Citi.
The Wall Street Journal reported that VW and General Motors have recently been running their plants in China at less than full capacity for the first time as demand weakens. There has also been discounting and increased incentives for car dealers.The Wall Street Journal reported that VW and General Motors have recently been running their plants in China at less than full capacity for the first time as demand weakens. There has also been discounting and increased incentives for car dealers.
Luxury goodsLuxury goods
Global luxury goods groups have cashed in on booming demand for top labels in China in recent years - with the market growing at nearly 20% a year in 2012, according to research by Bain & Co. Global luxury goods groups have cashed in on booming demand for top labels in China in recent years, with the market growing at nearly 20% a year in 2012, according to research by Bain & Co. But, like Burberry, many are now suffering as growth peters out. They include France’s Hermes (20%-25% of sales to China) and Switzerland’s Richemont (24%) and Swatch Group (37%), which feature in the list of most exposed stocks. Others likely to be hard hit include LVMH, Cartier and Omega.
But, like Burberry, many are now suffering as growth peters out. They include France’s Hermes (20-25% of sales to China), and Switzerland’s Richemont (24%) and Swatch Group (37%), which feature in the list of most exposed stocks. Others likely to be hard hit include LVMH, Cartier and Omega.
High-end cognac sales in China have also been under pressure since a clampdown on corruption and conspicuous extravagance. A slowdown now could be painful for Remy Cointreau, with China accounting for just under 30% of its profits.High-end cognac sales in China have also been under pressure since a clampdown on corruption and conspicuous extravagance. A slowdown now could be painful for Remy Cointreau, with China accounting for just under 30% of its profits.