The world is worried about China, and the world has reason to be worried. The world’s second-biggest economy’s “debt bomb” is now ticking at $28 trillion, after rising from 158% of GDP in 2007 to 282% today, according to McKinsey. Exports plunged 8.3% in July. The Shanghai and Shenzhen stock markets are down about 8% in the last three days, as heavy-handed government attempts to stop the slide backfire.
If the Chinese hard landing proves a hard fact, that will be particularly punishing for FTSE 100 favourites ARM Holdings (LSE: ARM), Burberry (LSE: BRBY), HSBC Holdings (LSE: HSBA), Intertek Group (LSE: ITRK) and Standard Chartered (LSE: STAN).
Last week Citigroup warned that 48 large cap European stocks would be hit particularly hard, and these five UK-based companies were on the list, as they generate more than 30% of their sales from China.
ARM Holdings
The chips are down for one of the Fool’s favourite tech stocks. Last year it was hit by a slowdown in smartphone sales, nearly all of which include ARM technology. Sales this year have held strong, up 3% in the second quarter to $357m and 15% year-on-year, while its hectic licensing activity should deliver royalties for years to come. I suspect the glory growth years are over, and yielding 0.77%, it certainly isn’t an income stock, but its prospects are steady if no longer spectacular.
Burberry
I’ve been a follower of the fashion for Burberry but it has suffered a catwalk pratfall lately, falling 22% over the past six months, on fears that Chinese customers are beating a forced retreat from conspicuous consumption.
Retail revenues still rose 8% in the first quarter $407m, strong growth in the Americas offset retrenchment in Hong Kong and China. Its strong digital presence should also help bolster its financial cachet and its high net clients are largely immune to economic volatility.
HSBC Holdings
With first-half profits up 10%, HSBC should have little to worry about. But it’s a big UK-listed bank, so naturally it has plenty to worry about. At least it has settled with US investors over foreign exchange rigging claims, so that’s one less thing. But management’s recent decision to shift its focus to Asia and southern China may have come at exactly the wrong time. That could make it harder to grow profits, especially if Hong Kong suffers from the mainland’s malaise. Still, there’s always its yield, currently 5.83%.
Intertek
Intertek enjoyed a recent boost after posting a 16.1% rise in first-half pre-tax profit to £139m on revenue momentum, improved margins and healthy cash generation. Yet it remains vulnerable to the sharp slowdown in global trade, which would hit its global testing and inspection market.
Freight rates for container shipping from Asia to Europe plunged more than 20%c in the second week of August, while manufacturing is falling in countries from the US to China. Intertek has done well, but the headwinds are growing stronger.
Standard Chartered
This UK-listed bank struggling even before Chinese difficulties became more acute. Performance has been so bad that analysts actually applauded the recent 50% cut in its interim and full-year dividend. Profits are down 44% to $1.42bn, on falling income and soaring adverse loan impairments. Trouble in China will only make life tougher. Right now, this is one for die-hard contrarians only.
