Will China Revalue Their Currency?

Have we approached a tipping point for the advent of a new global currency that will recognize the dollar's demise and the rise of China as the new world economic power? Or are fears of the dollar's decline overblown?

That's the question posed by Forbes columnist Robert Lenzner. He points out that Xia Bom, an advisor to the People's Bank of China, China's central bank, did not rule out a one-off revaluation upward of the Chinese currency. In fact, rumors of a Chinese yuan revaluation sent the dollar to fresh lows during last week's trading.

"Such a move would be highly beneficial to the Chinese economy; it would dampen the worrying high rate of inflation by making it cheaper to buy the natural resources China requires for her 9.7% rate of growth including energy, metals, coal -- and even foodstuffs," explains Lenzner.

"Controlling inflation is a key priority in China, and a yuan appreciation would be a bold surprise -- but may be required if the policy of raising bank interest rates does not work."

"And it would mean China could continue to buy U.S. Treasury securities at a cheaper price to make up for the declining value of the dollar, which hit a new low for the past several decades today."

So who stands to benefit if the yuan rises and the dollar continues its downward trend?

U.S. multinational corporations that have a big presence in Asia, like Proctor & Gamble, Colgate Palmolive, and Apple, are the obvious candidates. They all benefit from a weak dollar / strong yuan combination -- stronger currencies give foreigners more buying power. And when foreign sales are translated back into a weaker dollar, it often boosts profit margins significantly.

So what we want to know is which multinationals are seeing significant institutional buying? We crunched some data on hedge fund flows and list the companies below.

The list has been sorted by the size of institutional buying during the current quarter. (Click here to access free, interactive tools to analyze these ideas.)

1. Ford Motor (NYSE: F  ) : Auto Manufacturer. Institutional investors were net buyers of 98.6M shares during the current quarter, which represents about 2.9% of the company's float of 3.40B shares. Ford has announced plans to double its China workforce by 2015. The company saw its Chinese sales climb 40 percent to 582,467 vehicles in 2010.

2. Bunge Limited (NYSE: BG  ) : Farm Products Industry. Institutional investors were net buyers of 3.7M shares during the current quarter, which represents about 2.55% of the company's float of 145.21M shares. In their FY 2010 annual report, they pointed out that they are currently constructing their fourth oilseed processing facility in China.

3. Dell (Nasdaq: DELL  ) : Personal Computers Industry. Institutional investors were net buyers of 39.2M shares during the current quarter, which represents about 2.4% of the company's float of 1.63B shares. During FY 2011, revenue from outside the U.S. increased 19% to $29.6 billion and represented 48% of DELL's total net revenue.

4. Xerox (NYSE: XRX  ) : Business Equipment Industry. Institutional investors were net buyers of 27.6M shares during the current quarter, which represents about 2.04% of the company's float of 1.35B shares. Approximately 50% of Xerox's consolidated revenues are derived from operations outside of the United States, where the U.S. dollar is not the functional currency.

5. PepsiCo (NYSE: PEP  ) : Processed & Packaged Goods Industry. Institutional investors were net buyers of 6.9M shares during the current quarter, which represents about 0.44% of the company's float of 1.58B shares. "Our operations outside of the United States contribute significantly to our revenue and profitability, and we believe that our businesses in developing and emerging markets, particularly China, present an important future growth opportunity for us," reads a statement from the company's recent filing.

6. General Electric (NYSE: GE  ) : Conglomerates Industry. Institutional investors were net buyers of 44.8M shares during the current quarter, which represents about 0.42% of the company's float of 10.60B shares. GE's China sales are rising at about 20 percent annually and should grow in the "high double-digits" in 2011 as the company builds partnerships and seeks orders, Chief Executive Officer Jeffrey Immelt said in January.

7. Caterpillar (NYSE: CAT  ) : Farm & Construction Machinery Industry. Institutional investors were net buyers of 2.2M shares during the current quarter, which represents about 0.35% of the company's float of 636.95M shares. "We continue to see signs of economic improvement, particularly in China," reads a statement from the company's last annual filing.

8. Coca-Cola (NYSE: KO  ) : Soft Drinks Industry. Institutional investors were net buyers of 1.4M shares during the current quarter, which represents about 0.07% of the company's float of 1.98B shares. Coca-Cola Chief Executive Muhtar Kent said this week that the company is getting a big lift from the weak dollar, helping offset surging commodity prices.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.


Kapitall's Eben Esterhuizen does not own shares of any companies mentioned.

Coca-Cola is a Motley Fool Inside Value pick. Apple and Ford Motor are Motley Fool Stock Advisor selections. Coca-Cola, PepsiCo, and Procter & Gamble are Motley Fool Income Investor recommendations. Motley Fool Options has recommended a bull call spread position on Apple. Motley Fool Options has recommended a diagonal call position on PepsiCo. The Fool owns shares of Apple, Coca-Cola, Ford Motor, and PepsiCo. 

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1482885, ~/Articles/ArticleHandler.aspx, 11/28/2014 7:24:30 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement