vba big winner as local currency soars

snippets from Tim Boreham | October 19, 2009
Article from: The Australian

LISTED airlines Qantas and Virgin Blue, struggling rag trader Pacific Brands and Coca-Cola Amatil have been rated among the biggest beneficiaries of the Australian dollar's strength

In separate research, brokers Macquarie Equities and Goldman Sachs JBWere have assessed the specific earnings impact across the blue-chip sector -- and there are some surprising inclusions.

The accepted rule of thumb is that companies with predominantly offshore earnings will be hit as they have to translate foreign earnings (typically in $US) back to the local currency. Resource stocks are universally affected as most traded commodities are struck in $US terms.

On the positive side the surging currency is good for importers such as retailers and those who ship in manufacturing inputs, such as Coca-Cola.

But when it comes to individual companies' sensitivities the equation becomes much less clear cut: some have hedged their exposures while for others the currency joy (or pain) is offset by the impact of higher interest rates.

According to Macquarie Equities, the robust $A -- now at close to parity with the greenback -- is closely linked to global economic growth: higher growth means more demand for the commodities that underpin the $A.

"The movement in the $A and global growth are two sides of the same coin," the firm says. "So for economic-sensitive stocks, leverage to the economic recovery may partially, if not fully, offset the currency impact on earnings."

The biggest winners include Qantas and Virgin Blue (lower fuel costs and strengthening outbound travel), Boral (lower offshore debt costs), condom and glove maker Ansell, apparel importer Pacific Brands, diversified industrial Alesco and waste manager and car importer Transpacific.

Continued.......