Monday, April 23, 2007

Yuan continues to appreciate v/s USD....

The Chinese Yuan has seen a one-sided movement against the USD. Over the past one and a half years, it has witnessed an appreciation of close to 7 per cent. How significant is this? News reports suggest that it is quite significant, so far as the Chinese garment industry is concerned. Came across a few articles that highlight the same:

1). "China's textile industry says it loses 8.2 billion yuan ($1.1 billion) of annual profit for each percentage point rise in the currency"

2). "The textiles sector, with average gross profits of five to 10 percent will cease to be as lucrative once the yuan appreciates by 5 percent"

3). Growth in China's textile industry slows

Does this bode well for Indian textile companies? Maybe, especially if the sharp appreciation in Yuan forces Chinese companies to raise prices. However, one important thing that can nullify the above is a continuation in the appreciation of the rupee vis-a-vis the dollar, as seen in the last one month or so.

Watch the currency movements closely over the next few months as also the export numbers, both from India and China to the US.

Textile scrips have been big underperformers on the bourses over the past one year. Scrips like Arvind Mills, Alok Industries, Gokaldas Exports, House of Pearl Fashions, etc. all are down by anything between 15-50 per cent. With prices at their 52-week lows and valuations looking down the barrel, it wont be a bad idea to invest into some of these. A Contrarion Call.

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