China's Weaker Yuan Makes These Firms Particularly Vulnerable

(Bloomberg) -- The recent tumble by China's currency is leaving some stocks and companies more vulnerable than others.

The yuan slid past the 7 per dollar level on Monday for the first time since 2008 amid a trade dispute with the U.S., though it has stabilized since then. While China may limit more declines to ease the impact on markets, the exchange rate will weaken again if trade talks sour, China Securities Co. said in a note dated Tuesday.

Companies that rely on foreign debt, especially by borrowing in U.S. dollars, and those whose businesses depend on Chinese consumers, will likely suffer more than others from a weaker yuan.

Airlines: Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp. had at least 21% of their total debt denominated in U.S. dollars as of end-2018, annual reports show. A weaker yuan would make repayment of that debt more expensive and push up costs as fuel and new aircraft are priced in the greenback
Developers: Real estate firms are also among the biggest holders of U.S. debt. They account for about 31% of total outstanding dollar bonds issued by Chinese companies aside from banks, according to data compiled by Bloomberg. That is the highest among all sectors
Hong Kong jewelers: While gold prices are getting a boost amid risk-off sentiment -- a boon for jewelers -- a weaker yuan undermines the spending power of Chinese consumers. The mainland market contributed more than 62% of revenue to Chow Tai Fook Jewellery Group Ltd. last year and nearly half of sales for Chow Sang Sang Holdings International Ltd., according to data compiled by Bloomberg
Hong Kong retailers and Macau casinos: The two cities might see fewer visits from mainland Chinese people worried about currency depreciation. Sa Sa International Holdings Ltd. Chairman Simon Kwok, whose cosmetics retailer is popular with Chinese travelers, said in June that customers become more prudent when the yuan falls. The same issue could prevent both small-fry tourists and high-spending gamblers from wagering big in Macau. This is because they must convert yuan to Hong Kong dollars that are pegged to the greenback for use at gambling tables
Foreign luxury goods companies: A weaker yuan may deter Chinese travelers from purchasing products from Swiss watches to German cars and Italian handbags on their trips abroad since they become more expensive

To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net;Jinshan Hong in Hong Kong at jhong214@bloomberg.net;Annie Lee in Hong Kong at olee42@bloomberg.net;Kyunghee Park in Singapore at kpark3@bloomberg.net;Xiaoying Zhao in Hong Kong at xzhao306@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Philip Glamann, Rachel Chang

With assistance from Bloomberg