NEW YORK (
) - After months of concerns about weakness in the Euro, the prospect of a rising Yuan was a dose of good news for U.S. equities. A stronger Yuan could spur greater domestic demand in China, which could benefit companies that export to these markets. It might also make American products more competitive in the export market, in general.
Some of the initial euphoria died down in the final hours of trading on Monday amid uncertainty surrounding the extent to which China will allow its currency to appreciate. Regardless, a more flexible Yuan policy is likely to have an impact on U.S. exporters to China.
China is the third largest export market for the U.S. It already de-pegged its currency from the dollar once before in mid-2005 and let it gradually appreciate by nearly 20 % until the crisis hit in 2008. U.S. exports to China boomed during the period, growing 75 % to $70 billion. In mid 2008, China fixed its currency rate at about 6.8 Yuan to the dollar, which several economists considered to be at least 30 to 40 percent below its real value.
Now China has said that it will allow the Yuan to move more flexible against the dollar, but has warned that it would allow the appreciation to be only gradual. While it might not make a significant dent in the $ 268 billion trade deficit with China any time soon, a rise in the Yuan could translate into decent gains for companies in certain categories such as electrical machinery, aircraft, scrap metals and processors where the U.S. actually manages a trade surplus with China.
are some of the stocks that have been in the limelight following the announcement. That is because the sheer scale of operations make them among the largest exporters to China. Read on to see how these Dow heavyweights could potentially gain from a rising Yuan.
Leading Aluminum maker
derives more than 80% of its revenues from the U.S. and Europe, and China's tremendous demand for Aluminium is still key to its future growth.
Alcoa CEO Klaus Kleinfeld told CNBC last week that he expects half of the company's projected 10% revenue growth in 2010 to come from China, on the back of higher demand for primary aluminum.
Alcoa has a big presence in China, with more than 15 production facilities. Current projects include a partnership with Commercial Aircraft Corporation of China to build China's largest passenger jet, C919 , that could compete with Boeing and Airbus in China. A recently commissioned Alcoa lithographic sheet facility at Qinhuangdao, China, is also expected to ramp up production in 2011.
exports of commercial aircraft to China doubled in 2009 to $4.8 billion, as rising air travel in China continues to fuel demand.
Airbus and Boeing are the main suppliers of Aircraft to China, and that duopoly might be broken with the development of the C919 passenger jet.
Still, Boeing's CEO James McNerney told the
Wall Street Journal
last month that China's market was large enough to support Boeing. McNerney added that he expects the market to triple in size over the next ten years. "Forty percent of the market would be a huge win in a market
that size," McNerney told the
Construction and mining equipment maker
has been capitalizing on China's enormous investments in infrastructure. The country plans to invest $10 billion over the next five years to expand its pipeline infrastructure, and Caterpillar's dealers in the country are well placed to capture that opportunity, according to the company's latest annual report.
Caterpillar exports $2.5 billion worth of products and services to the Asia Pacific, and its businesses in the region generate about $ 7 billion. Needless to say, China is the largest contributor to the region's growth.
has a significant presence in China across industries ranging from healthcare to aviation to oil and gas -- and generates about $6 billion revenue in China.
GE also sources about $4 billion dollars worth from China, which could mean that the impact of the Yuan would be more muted in GE's case.
Still, so long as China continues to invest heavily in infrastructure, GE stands to gain. Its presence in healthcare also helps it to cater to domestic demand in China.
did not participate in the market action on Monday but it is a major contender among China plays, deriving about $ 5.8 billion, or 17%, of its revenues from China. China is the second biggest market for PCs after the U.S.
Intel is building a 300 mm wafer fabrication facility in China that is expected to commence production in late 2010 or early 2011.
More Stock Picks 10 Stocks to Benefit From a Stronger Yuan
-- Reported by Shanthi Venkataraman in New York