Paris - China’s market slump is making itself felt in corporate earnings around the world.
French distiller Remy Cointreau, US fast-food company Yum! Brands, UK luxury-goods maker Burberry Group and South Africa’s Kumba Iron Ore are among the companies taking a hit from China, where a month-long rout in stocks wiped out almost $4 trillion (R50 trillion) in market value. The International Monetary Fund sees China’s economy expanding this year at the slowest rate since 1990, and said the country was a source of potential risk to global growth.
Slowdown
The effect is likely to be be highlighted over the next few weeks as the bulk of the world’s biggest companies report second-quarter earnings. China has been among the fastest-growing markets in the past decade for cars, luxury goods and raw materials, and the slowdown is particularly unwelcome now as emerging markets such as Brazil and Russia are also struggling and cannot pick up the slack.
China “is clearly a weakening environment in the near term”, Investec Wealth & Investment head of research John Haynes said in an interview on Bloomberg Television. “For us that’s an opportunity, not something to worry about.”
Remy Cointreau shares dropped the most in 11 months on Tuesday after the company’s quarterly sales missed estimates because Chinese wholesalers continued to hold back on cognac orders. Demand for pricey drinks, as well as expensive wallets and watches, has slumped amid a clampdown on graft and lavish spending, which hit gift giving.
Yum, the owner of KFC, Pizza Hut and Taco Bell, last week posted revenue that missed estimates as second-quarter same-store sales in China plunged 10 percent.
Kumba, Africa’s largest producer of the steel-making ingredient, eliminated its dividend on Tuesday as the Pretoria-based company announced that first-half profit sank by 61 percent.
Retail and consumer-goods companies are feeling the pain after China’s individual investors suffered losses in the stock market. French supermarket operator Carrefour said on July 16 that Chinese customers were spending less when they shopped and the prices of products such as pork and cooking oil had fallen. The grocer’s comparable sales fell 12 percent in the Asian country in the second quarter, excluding fuel and calendar effects.
Rebound hopes
Higher-end products also are suffering. Audi, China’s best-selling luxury car maker, was providing 1.2 billion yuan (R2.43 billion) in financial aid to dealers in the country as demand for luxury vehicles slowed, people with knowledge of the matter said this week. The car manufacturer also lowered its sales target for this year, they said.
Some investors and companies, though, already are anticipating a rebound in business, fuelled by China’s demographics and market-friendly policies. Investec’s Haynes said he would be looking to buy shares of companies such as Burberry if they slumped on disappointing news out of China.
“I’m an incurable China optimist,” Haynes said. “These are 1.3 billion people who are becoming part of our world. They’re consuming more, they want what we want, they have a government that wants them to have what we have and they have no interest in creating disorder in the world.”
Companies, too, are betting on a rebound. Netflix aimed to introduce its internet TV service in China next year, the company said last week. Unilever this week announced a partnership with e-commerce giant Alibaba Group to help the Anglo-Dutch consumer-goods company better reach Chinese customers.
Kone, the Finnish elevator maker that gets about one-third of sales from the country, will highlight that business at a briefing for investors in Shanghai in September.
For many companies, though, business in China will get worse before it gets better.
In Sweden, SKF, the world’s biggest manufacturer of bearings, last week predicted demand would drop this quarter as clients from car makers to mining companies saw weakening orders from China. Assa Abloy, the Stockholm-based company that makes Yale locks, predicts a 5 percent to 10 percent drop in China sales in the second half.
“It is a clear slowdown in demand,” chief executive Johan Molin said in an interview last week.
“We see that there’s fewer and fewer construction projects ongoing, and we also see that it’s hard to get paid, so we have to be cautious,” he added. – Phil Serafino for Bloomberg