What are we looking for?
North American-listed companies exposed to China as their "primary country of risk," ranked according to recent momentum characteristics and how they have been affected by the recent devaluation of the Chinese yuan.
The screen
Last week, the People's Bank of China allowed the yuan to fall to a new four-year low, a singular decision for a central bank that is synonymous with tightly controlling its currency. Having underperformed estimated growth prospects so far this year, the currency devaluation proved a logical step in order to boost exports and shift national growth back on trajectory.
This screen looks to identify North American companies with a market capitalization of at least $1-billion (U.S.) and high risk exposures to China through the use of the primary country of risk metric in the Thomson Reuters Eikon screener tool. The screen includes companies that have a score of at least 80 in the StarMine Price Momentum Short Term model, which compares the most recent closing price with the average daily closing price over the past 10 trading days and rewards stocks whose prices have recently declined but are well positioned for a reversal.
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What did we find?
This screen identifies 14 companies that were negatively affected by the yuan devaluation last week and is ranked according to the price-momentum model. Most notable on the list is Alibaba Group Holding Inc., the e-commerce giant based out of China that came out with an initial public offering on the New York Stock Exchange almost 11 months ago. NetEase Inc. tops the screen, with both the highest score in the price-momentum model and the largest price decline of nearly 15 per cent following the announcement on Aug. 10. Despite the recent devaluation, NetEase has seen strong growth momentum in its gaming division and may be providing an excellent entry point for value investors.
This commentary does not provide individualized advice or recommendations for any specific subscriber or portfolio. Investors should conduct further research before investing.
Ryan Gottschalk works in the financial and risk unit of Thomson Reuters and specializes in asset management.