Weak dollar is boosting these China stocks
The weak dollar has a surprising upside. It is sending China stocks soaring. Here are two to take advantage.
While things may be looking up for the global economy right now, the reality is that the greenback is down and out -- and will remain depressed for a while.
5 Winners of a Weak Dollar
There’s no secret to why the dollar has collapsed. Government spending is out of control and the economy is still struggling. The Federal Reserve has been printing money simply to cover U.S. debts, and this has devalued America’s currency.
But a weak greenback actually does have benefits. A weak currency makes a nation’s goods more affordable abroad due to favorable exchange rates. This allows exports to really pick up, and ultimately provide economic growth.
Interestingly enough, part of the reason China is doing so well right now is because the dollar is weak. Since Beijing pegs its currency to the greenback, the Chinese yuan has marched in lockstep with the U.S. dollar and has also seen its currency drop compared to other nations.
This has given the export industry in China a huge competitive edge because a weaker currency always makes goods more affordable abroad. Manufacturing and exports are massive industries in China, so a weak currency is a very good thing for the People’s Republic.
Two Chinese stocks really benefiting from the weak dollar right now are LJ International (JADE) and China Green Agriculture (CGA).
LJ International, a Chinese luxury goods and jewelry company, saw revenues total $26.2 million in the third quarter, with retail sales up 24% over last year. Gross profit was up, reflecting revenue increases across both wholesale and retail divisions, and helped drive net income up an impressive 201%.
The company’s expansion strategy is expected to include 100 new ENZO store openings over next two years, which gives LJ International a very bright outlook going forward.
China Green Agriculture also reported third-quarter earnings recently and saw shares move up nicely as a result. The company topped estimates for its latest quarter thanks to a 27% jump in sales, a 50% jump in net income and a rise in operating margins.
Looking forward, CGA boosted its fiscal year 2010 guidance. Officials said the surge this quarter was primarily due to the increase in production capacity and the sales from more high-end products, but in general, sales were robust across the board. Fertilizer sales volume increased 5% year over-year, indicating a strong growth trend for this stock.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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