Any investor with overweight equity exposure towards China is likely to have outperformed most broad stock market benchmarks in 2020.
As China has seen almost a full economic recovery from the coronavirus-induced global contraction in economic activity, many companies with high revenue exposure to China have seen their stocks either recover almost all of their losses for 2020 or have a gain.
Interestingly, the Nikkei 225 Index, one of the main equity benchmarks in China, has risen about 36% since its low in late March, in line with the S&P 500, as the U.S. has had a slower recovery from the coronavirus to date. But economists and strategists do point out that China’s total output has returned almost 100% to pre-virus run-rates. The virus has almost completely disappeared and the country’s manufacturing sector — 40% of its GDP — has resumed growth. With the Chinese consumer out and about and financially stable, and with manufacturing activity now able to meet demand, American companies with Chinese operations are enjoying strong fundamentals.
The S&P 500 is down 6% year-to-date.
Here are four U.S. stocks with heavy China revenue exposure and their stock performance this year:
- Western Digital (WDC) - Get Western Digital Corporation Report: -33% YTD, +48% from low, 25% China revenue exposure
- Wynn Resorts (WYNN) - Get Wynn Resorts, Limited (WYNN) Report: -41% YTD, +90% since low, 76% China revenue exposure
Nike and Apple have solid balance sheets and have weathered the storm without problem, an advantage Western Digital and Wynn Resorts have not enjoyed as much. Western Digital and Wynn both have heavy debt loads, especially Wynn. This has caused investors to become concerned about liquidity, and possibly for Wynn, solvency.
Apple is benefitting from high expectations of the secular growth trend of 5G, which analysts expect to pick up in 2021. It’s also continuing to grow its services business in the mid-teens in percentage terms for revenue. Nike’s e-commerce sales in the U.S. and globally have helped the company in 2020, while its China revenue exposure is an obvious positive.