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Stocks, Currencies, and Your Profits (Part 2)

10 October 2007 - Features - Editor

How Exports Can Be Developed to Strengthen Stocks

Some executives, especially technical experts, argue that they cannot deal with the uncertainties which surround currency futures. It is true that future developments cannot be foreseen with certainty, especially some changes in the global geo-political situation. However, that should not mean that investors can afford to ignore the possible effect of changes in relative currency values on their stock.

An axis of action which is largely controllable, and which can stabilize the profits of every company, is to develop diverse and healthy exports to leading economies around the world. This is why stocks of companies which are global leaders in their domains, offer top values to investors. Even the best product will not sell on its own, so companies have to focus on marketing and distribution initiatives abroad. Global enterprises must also have in-depth appreciation of the macro-economic factors which affect national currencies. The Indian software industry is a telling example of how business people with foresight can avoid the pitfalls of changes in currency valuations-India has developed new export markets for its software products, so that it is not unduly buffeted by negative developments in any one country.

An Example of Global Values for Stocks

Another approach towards building bulwarks against currency changes is to specialize in something which everyone wants: the Manitowoc Company is a good example. This company started life building ships at the turn of the last century, but diversified in the wake of World War II in to all kinds of cranes and specialized refrigeration. Now which country can do without such basic products? The result is that this US corporation has clients around the globe. It continues to outperform many other stocks even at a time when the dollar-its home currency-is under attack. A depreciating dollar means lower wage bills at home for Manitowoc, even as its sales realizations from exports rise appreciably. Besides, a mild recession in the United States will not affect the fortunate holders of this company’s stocks, since demand for cranes and refrigeration products continues to bludgeon in emerging economies.

 


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