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
2. Bunge Limited
6. General Electric
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.
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