* Weaker EM currencies to benefit firms with costs abroad
* Could ease wage pressure on South Africa-based gold miners
* Conflicting impact on carmakers
* Travel firms to benefit from lower costs in Turkey
By Alistair Smout
LONDON, Feb 9 European stocks from travel firms
to South Africa-focused gold miners may reap some benefits from
an emerging market sell-off that has otherwise roiled equities
across the globe.
While heightened awareness of emerging market
vulnerabilities has shaved 5.5 percent off world shares
since mid-January, investors are looking to
stocks with exposure abroad that could benefit from a prolonged
period of local currency depreciation.
Stocks with high exposure to developing economies usually
suffer when earnings are hit by unfavourable exchange rates.
Some EM-focused companies are already taking steps, such as
covering their exchange rate risks, to protect earnings from the
However, a handful of firms in certain sectors stand to gain
as weakness in currencies such as Turkey's lira and South
Africa's rand reduces local costs.
"If you're an operator in those countries and you're a
producer in those countries and you sell in a developed market
currency, your costs will be going down, and if you sell in
dollars, that trend is very helpful," Gerard Lane, equity
strategist at Shore Capital, said.
"There will be companies that are net beneficiaries of this
emerging market fallout."
While emerging market weakness is often associated with
fears over global growth that lead to lower commodity prices,
the falling rand can help to hold down local costs for gold
miners such as Anglo American and Randgold Resources
that operate in South Africa.
Their shares are up 8.7 percent and 10.6 percent
respectively in January, benefiting also from upbeat production
updates from the strike-prone sector and from investors seeking
the traditional safety of gold.
The mining firms have been under pressure from local workers
demanding wage hikes, and these could be easier to grant if the
value of the rand versus other major currencies remains
Lower local costs have provided an "immediate benefit to
margins," Credit Suisse said in a note on Wednesday,
highlighting Anglo as prospering the most due to this factor.
For Randgold, estimates of first-quarter earnings have risen
10.9 percent over the last 30 days, data from Thomson Reuters
The equation is more complicated for other firms that
produce in emerging markets: the benefits from lower costs and
cheaper exports can be outweighed by a weaker domestic currency
eating into profits.
For example, strong demand in Russia for locally-produced
Renault group cars last year was offset by a weakening
However, Renault also has plants in Turkey, which
could be a low-cost base for exports to other countries.
More than three quarters of cars made by Renault in Turkey
are exported, according to the company's website, while Autostat
data shows it exports less than 5 percent of the cars it makes
"Lots of car manufacturers have plants in Turkey, which has
just become more competitive. Having gone through the pain of
the euro crisis, the euro zone needs to become more competitive
again, else Turkey will steal their lunch," Lane said.
If Turkey's cheapness also attracts tourists eager for a
cheap deal, Ryanair and easyJet could stand to
gain from an increase in passenger numbers per plane.
"So long as they can fill up planes both ways... then
utilisation could improve impressively," Neil Wilkinson,
European equities fund manager at Royal London Asset Management,
Such a trend could also boost the likes of Swiss duty-free
firm Dufry, Wilkinson added. Dufry posts full-year
results on March 13 and is expected to beat consensus
expectations on pre-tax profit by 9 percent, StarMine showed.
Shore Capital's Lane said that while some tourists may
simply switch from euro zone destinations such as Greece to
Turkey, with a limited net effect on airlines, providers of
package holidays often run high-margin businesses in Turkey.
"There's definitely a trend for the UK holidaymaker to start
going overseas again. For the likes of Thomas Cook and
TUI Travel, they're seeing that come through in terms of
the higher margin "all inclusive" packages, and Turkey is a big
destination for those two," he said.
"If the tourist consumer is feeling a bit more flush, those
firms could be a big beneficiary."