In the last two months, we have seen the Australian dollar shed nearly 5% to the US dollar. From nearly US$0.81, one Australian dollar is now fetching closer to US$0.77. As the outlook for the Australian dollar turns more negative, investors need to be aware of how this can impact their share holdings.
We have previously written on this blog about what would happen to stocks if the Australian dollar appreciated. (You can access it here – https://fairmontequities.com/high-australian-dollar-will-affect-sector/ )
But which stocks would benefit if the opposite occurred and the currency continues to weaken?
Companies which generate their earnings overseas in US dollars will be winners from a weakened Australian dollar. Overseas earners include, but is not limited to, companies such as Cochlear Limited (ASX:COH), Westfields Corp Ltd (ASX:WFD), Resmed (ASX:RMD), James Hardie (ASX:JHX), Computershare (ASX:CPU), Amcor (ASX:AMC), Ramsay Healthcare (ASX:RHC), CSL limited (ASX:CSL), and Brambles (ASX:BXB).
When the AUD is weak,Companies which earn a significant portion of their revenue in US dollars will find a strengthened earnings statement when numbers are converted back into AUD.
China Stocks such as Bellamy’s (ASX:BAL), Blackmores (ASX:BKL), a2 Milk (ASX:A2M) would also well under these market conditions. A stronger Renminbi means it is cheaper for Chinese consumers to purchase more Australian products which can mean increase sales.
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Educational services such as Navitas, a global education provider where a quarter of their students come from overseas countries would do well with a weak AUD. If there is a drop in the Australian exchange rate then these educational services would be cheaper for these overseas students. In a competitive market such as educational services, an Australian dollar depreciation is a positive for this company. Students may be motivated to select Australia to study over other countries if their fees are cheaper.
A falling AUD is a positive for manufacturers as they can sell more products domestically and overseas.
AUD products would be cheaper than imports as a weak Australian dollar would increase the price of imports. A lower Australian dollar also means manufacturers would be able to sell their products to importers at lower price. This will help them stay competitive. In the domestic market, Australian made goods would appear more attractive as imported goods would be more expensive.
A lower Australian dollar means cheaper holidays for overseas visitors here in Australia but bad news for Australians wanting to travel overseas. Stocks related to the tourism industry would benefit from a lower Australian dollar such as Ardent Leisure (ASX:AAD), Crown Resorts (ASX:CWN), Mantra (ASX:MTR), Flight Centre (ASX:FLT), Webjet (ASX:WEB), and Village Roadshow (ASX:VRL). Tourism domestically would also increase as Australians may choose to travel within their own country rather than go overseas. Sydney Airports (ASX:SYD) should also benefit from this increase in tourism.
The weakening of Australian dollar is a positive for commodities. When a country wants to buy Australian iron ore, they must purchase AUD dollar first. If the AUD dollar is lower, they can purchase more AUD and purchase more iron ore. When the AUD is too strong, the iron ore buyer may look at other countries with cheaper iron ore prices and exchange rates such as Brazil. A low Australian dollar is beneficial for commodity companies to stay competitive in this industry. Companies which as RIO Tinto (ASX:RIO) ,BHP (ASX:BHP) and Fortescue Metals Group (ASX:FMG) would benefit from a low Australian dollar.
Gold producers would be winners as gold is quoted in US dollars. As revenue is generated in USD dollars, there are currency exchange gains to be made when earnings are converted into AUD. Examples of gold producers include Northern Star Resources (ASX:NST) , St Barbara (ASX:SBM), and Evolution mining (ASX:EVN).
Lauren Hua is a private client adviser at Fairmont Equities.
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