By Senad Karaahmetovic
Several firms that missed Q2 revenue estimates have recently blamed the strong U.S. dollar. Goldman Sachs’ calculation shows that a 10% appreciation in the trade-weighted dollar creates a 2-3% impact on EPS.
David Kostin, Goldman Sachs Chief U.S. Equity Strategist, sees many more companies reporting weaker-than-expected Q2 revenue numbers due to the strong greenback.
However, there is a huge difference in the impact produced by the strong dollar when looking at different sectors.
“Two sectors—Info Tech (59%) and Materials (50%)—derive more than half of their revenues outside the United States. Due in large part to the semiconductor industry, Info Tech companies are particularly exposed to Greater China, with 27% of revenues derived from the Asia Pacific region broadly and 15% explicitly attributed to Greater China. At the other end of the distribution, the median Financials, Utilities, and Real Estate stocks derive less than 10% of revenues from outside of the United States,” Kostin added.
At the index level, Nasdaq 100 is by far the one with the highest exposure (47%), compared with 29% for the S&P 500 and only 20% for the Russell 2000.
Looking ahead, Kostin sees Europe-exposed US stocks continuing to underperform, while the outlook for stocks with high China exposure is challenging.
“China 2Q GDP growth came in much weaker than consensus expected, and property sector risks have recently come to the fore at the same time that a new surge in COVID infections has led to lockdowns in the region. Our China economists downgraded their growth forecasts in light of these developments and now forecast GDP growth of 3.3% in 2022 (from 4.0% previously). Year to date, a basket of US stocks with the highest revenue exposure to China (GSCBCHSE) has lagged the S&P 500 by 9 pp (-25% vs. -16%),” the strategist concluded.