VW, BMW, Daimler Victimized By China Fears.
“Germans are suffering in particular. In 2015, they exported about 511,000 vehicles from Germany and the U.S. to China”
German car shares were leading European stock markets down (in early January) as worries about China continued to spook investors.
The Stoxx Europe 600 index was down nearly 3.5 per cent in early trading, bringing the total fall so far this year to 6.5 per cent.
But auto stocks, heavily dependent on China for a big part of their profits, led the markets down. By late morning Volkswagen, which has other, well rehearsed problems in America, was the biggest auto loser, off close to 5.5 per cent, followed by BMW down nearly five per cent and Daimler about 4.5 per cent lower. Since the start of the year VW’s stock price has lost more than 11 per cent, BMW close to 10 per cent, and Daimler around 15 per cent.
Investment researcher Evercore ISI said the devaluation of the Chinese currency was the biggest threat to the global economy and the reason for panic selling of shares.
“German (car makers) are suffering in particular. In 2015, we estimate (they) exported about 511,000 vehicles from Germany and the U.S. to China,” Evercore ISI said in its daily report.
Evercore ISI estimated the combined foreign exchange exposure of Daimler, BMW and Volkswagen to China at 27.3 billion euros ($29.6 billion), which is hedged for the next two to three years.
“Nevertheless, assuming a 20 per cent devaluation from last year’s average (China renminbi versus euro) would equate to a lost profit pool of about 5.5 billion euros ($6 billion) for the three German manufacturers or 17 per cent of 2015 estimated operating profit, assuming no hedging,” Evercore ISI said.
Lost one per cent
According to the Financial Times, since New Year’s day, the renminbi has lost one per cent of its value, after dropping 2.6 per cent in the last two months of 2015.
“We understand macro concerns and a deeper devaluation of the Chinese currency would have multiple knock-on effects globally. Yet more than 25 billion euros ($27 billion) of Daimler, BMW, VW market capitalization has already been eliminated since the start of the year,” Evercore ISI said.
It did find some positive news though, adding that car sales in China are still expected to rise this year by between five and eight per cent.