Yaun Devaluation

Happy new year!
I’m new to ValuePickr and to investing and this forum has been a great learning experience.

I’m investigating on how the current Yaun’s devaluation will affect India’s economy and investors. The following are the basic leanings that I’ve:

  1. Rupee is expected to depreciate further compared to major traded currencies like USD/Euro thus increasing trade deficit. Not a good sign since India is still a net importer.
  2. Companies with ECBs/ external foreign currency borrowings will face liquidity issues on account of rupee depreciation.
  3. India loosing export orders to China, especially the textile sector which started recovering recently.

I’m looking for inputs to understand the following:

  1. How big is this issue, is it long term?
  2. Which all stocks will get affected?
  3. Export segments like Engineering, Pharma, Textile will benefit from rupee depreciation and hence wont it be good opportunity to invest in these stocks?
  4. What are the other opportunities that we can look into, in this scenario?

Request your valuable views. I’ve put this topic in “Special Situations”, request moderators to change the section if incorrect.

One of the benefits of Yaun devaluation will be to companies like Shaily Engineering who uses polypropylene/crude byproducts as raw materials as China is one of the largest manufactures of these. With crude and Yaun coming down Plastic product manufactures will be one of the major beneficiaries.

Adding a link: http://www.business-standard.com/article/international/five-indian-sectors-that-will-be-impacted-by-china-s-yuan-devaluation-115081100809_1.html

China debt is as follows

China debt = $28 trillion

Govt - 55% (As percentage of GDP)
Financial Institutions - 65%
Non-Financial corporate - 125%
Household - 38%

Total - 282% of GDP

I dont know if it is more or less but it certainly less than the US which is $60 trillion (350% of GDP) as on 31-Mar-14 increasing at around $500b/quarter according to the news article here.

Chinese government wish to shift the economy from manufacturing to services - Soft Landing. People argue at length that historically no economy has soft landed therefore instead of Soft Landing, economy will Hard Land. Nobody knows what future holds.

Monthly PMI data points that manufacturing is slowing and services are picking up.


Thank you Gaurav for this info. Trying to understand how this will affect India. If china is not focusing on manufacturing, its not bad for India’s manufacturing sector. Services industry will take time to pickup since there are many entry barriers especially the security aspect.

Depreciated yuan means imports from China get cheaper. This impacts Indian companies which are already losing their competitive strength because of cheaper China imports. Tyre companies, steel companies, textile companies of India will be impacted. This impact won’t be much if Indian Rupee also deprecates to same extend as Yuan.

These industries are already suffering because China dumps their products cheap and Indian companies are not able to match that dumped pricing.

@Gaurav_Agarwal nice article on US Debt. But the Services PMI figures are not correct I think. I checked on http://www.tradingeconomics.com/china/services-pmi .For Oct- 52, Nov- 51.3~, Dec- 50.2~. Can you please verify the figures. That means services are also declining.

As per me the dumping will severely hit the Indian Manufactures locally and on export level. It will not affect the companies which are having strong relationships to their vendors who will be looking for quality rather than cheap price.

I hope, more VP members post on this thread as this event (Chinese Meltdown) is going to impact economy and Portfolios of most of the investors. Lets be informed on Macro and micro factors

Agreed. I confused official PMI figure with Services PMI therefore I have changed the figures in the table.

PMI above 50 means the sector is expanding. Therefore services PMI more than 50 means services are expanding albeit at the slower pace in December than they were expanding in October.

Every business which faces adversity due to Chinese dumping will have to lobby for (increased)/ anti dumping duty.

My belief is, current government will sooner or later take measures to help domestic businesses survive against Chinese invasion.

The question is ‘when’. This uncertainty may provide us a chance to accumulate good businesses at low prices.