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What are we looking for?

China’s economy grew at the slowest pace in almost three decades, coming in at 6.1 per cent GDP growth for 2019. Given the multiple complex factors at play, including the impact of the U.S.-China trade war and the more recent coronavirus outbreak, we decided to investigate how U.S. companies with the largest geographic revenue exposure to China have performed and see which companies may be likely to benefit from any improvement in news headlines coming from China.

The screen

We examined U.S. companies connected to the Chinese market based on revenue exposure and stock price performance. As a starting point, we used FactSet Universal Screening to look at the constituents of the S&P 500.

We then applied filters to narrow our universe to companies with at least 10 per cent revenue generated from China utilizing FactSet GeoRev, a proprietary database that breaks down company revenues geographically.

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The United States and China confirmed their agreement on a Phase 1 trade deal on Dec. 13. We decided to evaluate the stock price performance of companies that fit our filters from one week before to one week after (Dec. 6 to Dec. 20) to better understand the effect of the announcement on returns. We limited our universe to companies that have outperformed the S&P 500 over this time frame to identify companies that may have benefited from positive developments in the U.S.-China trade relationship, bearing in mind correlation does not necessarily mean causation.

Last, we ranked companies by multiplying their exposure to the Chinese market by their “excess returns” – that is, their overperformance compared with the S&P 500, which had a total return of 2.4 per cent during this period. The companies listed here were the top 15 based on this calculation.

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What we found

Western Digital Corp., a disk-drive and data storage company, topped our ranks owing to its outperforming the S&P 500 by 22.1 per cent with 23.2 per cent of its overall revenue exposed to China.

Interestingly, 64 per cent of all companies in the S&P 500 with at least 10-per-cent revenue exposure to China outperformed the market during this period. Fourteen of the top 15 companies by our ranking were classified as technology companies. Additionally, 13 of the 15 companies are involved in the semi-conductor space, which has been well publicized for having supply chains and manufacturing intermingled with China.

Baker Hughes Co., representing the energy sector, was the only outlier in the top 15. Its strong performance may in part be a rebound after the oil field services giant suffered a decline in its share price after its Aug. 1 earnings call, when the stock went from US$25.27 to US$20.27 in a matter of two weeks. We also note that the Energy Select Sector SPDR Fund (XLE) outperformed the S&P 500 with a total return of 3.7 per cent during our December two-week time frame.

Investors interested in U.S.-listed companies would do well to bear in mind both company and overall sector exposure to China as the impact of the coronavirus and the trade relationship between China and the U.S. continues to evolve.

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The information in this article is not investment advice. FactSet assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained here.


RankCompanyTickerIndustry ClassificationMkt. Cap (US$ Mil.)Ann. Sales (US$ Mil.)GeoRev Chinese Revenue Exposure (%)*Ttl. Rtns. (Dec. 6 - Dec. 20) %Excess Returns (Dec. 6 - Dec. 20) %Div. Yld. (%)Recent Close (US$)
1Western Digital Corp.WDC-QTechnology19,997.516,569.023.224.522.13.067.24
2Qorvo Inc.QRVO-QTechnology12,443.13,090.355.09.47.00.0107.56
3Skyworks SolutionsSWKS-QTechnology19,572.93,376.820.617.314.91.5115.03
4Nvidia Corp.NVDA-QTechnology147,082.011,716.023.212.810.40.3240.33
5Applied Materials Inc.AMAT-QTechnology54,859.214,608.028.49.26.81.459.72
6Micron Technology Inc.MU-QTechnology59,742.823,406.015.414.912.50.053.78
7Lam Research Corp.LRCX-QTechnology43,941.09,642.721.710.78.31.5308.44
8Maxim Integrated Prod.MXIM-QTechnology16,389.92,314.334.17.45.03.260.84
9KLA Corp.KLAC-QTechnology26,813.94,564.625.89.06.62.0169.93
10Qualcomm Inc.QCOM-QTechnology98,788.424,273.046.46.03.62.986.48
11Baker Hughes Co.BKR-NEnergy22,088.023,838.014.913.010.63.321.51
12Texas Instruments Inc.TXN-QTechnology115,012.714,383.043.15.43.02.9123.40
13Xilinx Inc.XLNX-QTechnology21,163.63,059.027.06.44.01.785.05
14Adv. Micro DevicesAMD-QTechnology53,476.46,731.011.211.49.00.048.02
15Microchip TechnologyMCHP-QTechnology23,312.35,349.521.36.03.61.597.55Source: FactSet

Source: FactSet


Arjun Deiva is vice-president and associate director of consulting at FactSet.

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