Editor’s Note: “Mornings with Maria” on Fox Business Network interviewed Wolfgang Koester, Senior Strategist for Kyriba, to learn more about the winners and losers of the US-China trade war. Koester was joined by Benchmark managing partner and tech investor expert Kevin Kelley, and Moody’s capital market chief economist John Lonski, along with Fox anchor Dagen McDowell.
Click here to watch the interview on Fox: China trade war: Who will be the winners and losers?
Key takeaway for global corporations, according to Koester:
The trade war is driving market volatility and supply chain disruption that will result in market winners and losers. Companies need access to accurate, complete and timely data to gain full visibility into their exposures. With that visibility, they can more clearly find opportunities for organic exposure elimination and be able to increase their hedge ratios to protect themselves from impacts to earnings. China’s currency manipulation will impact other currencies and any exposures a company has to those other currencies that they’re not managing will likely lead to EPS and EBITDA impacts.
Bottom line: if you have insight into your exposures and can properly manage the associated risk, then the trade war and CNY devaluation shouldn’t cause unnecessary FX impacts. It may still cause supply chain disruptions, but that FX headwind piece will be removed.
What does the trade war mean for future investors in the market? Below is a summary of concerns and analysis based on the recent sell-off of U.S. Futures:
Download the Kyriba Currency Impact Report for more information about the $23B in reported 2019 Q1 currency impacts to N. American corporate earnings.
Benchmark Managing Partner Kevin Kelley said he’s “worried about mutually assured disruption,” and asked Wolfgang Koester, chief evangelist for Kyriba, what investors should do to protect their portfolios.
“Trade negotiations with China will continue to create market volatility, where we’ll see winners and losers,” Koester said. “Investors will want to pick winners. Companies that adjust their supply chain and diversify their resources may have better outcomes,” said Koester.
Moody’s Capital Markets Chief Economist John Lonski said, “if China allows its currency to fall further, this implies further depreciation for emerging market currencies. Am I correct to assume that this is going to make it worse for countries repaying for dollar denominated debt?”
“Yes, we have to be careful about the ‘race to the bottom’ of currency devaluations. We saw this in 2015. At the end of the day, investors have to look at companies who know how to manage their risk properly and protect shareholder value,” said Koester.
Fox Anchor Dagen McDowell said, “for companies like Tesla, a highly indebted company, how does currency depreciation impact the way they pay their debt back? We just don’t know yet how this plays out.”
McDowell also confirmed from a GM statement made earlier in the week that GM has $18B in cash and can pay dividends to investors for two years. This is a sign that GM is communicating to their shareholders that they are prepared for a down-turn.
For support in managing currency risk, check out the new ebook from Kyriba: Automating Corporate FX.
About Mornings with Maria
“Mornings with Maria” features anchor Maria Bartiromo alongside a roundtable of rotating industry titans and economic experts discussing the major news and themes driving the business day and the market moves.