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Published 13 October 2010 13:32, Updated 21 October 2010 05:16
The Australian dollar is rising towards parity with the greenback. It has brokers rushing to rethink the impact on earnings, especially for companies that export. A Goldman Sachs JBWere report states that an Australian dollar trading $1.00-$1.05 during the next six months would equate with a decline of industrial earnings per share growth from 11.6 per cent to 9.5 per cent for 2010-11, and from 12.9 per cent to 12 per cent in 2011-12. Resources earnings per share growth is expected to decline more sharply, from 48 per cent to 30 per cent for this financial year, and from 14 per cent to 12 per cent the following year. The report states that stocks more sensitive to the currency are: Paperlinx, Incitec Pivot, CSR, Aristocrat Leisure, Bradken, CSL, Foster’s Group and Cochlear. All may suffer earnings drops of greater than 10 per cent. The stocks expected to benefit from a stronger dollar, Goldman says, are: Qantas Airways, Virgin Blue Holdings, Pacific Brands, Boral and Coca-Cola Amatil. Industrial stocks that report earnings in US dollars, and consequently will be less affected, are: Ansell, Boart Longyear, Brambles, Computershare, James Hardie, Mineral Deposits, News Corporation and Resmed. “Key sectors and stocks that are at risk from a structural perspective are steel, wine, manufacturers and suppliers, and agriculture,” the report states. “A consistently strong dollar remains a long- term risk to the Australian economy as financial conditions tighten. Our preference is for domestic cyclicals and resources.” Goldman prefers Myer and Wesfarmers in retail; Qantas and Asciano Group in the transportation sector; Ten Network Holdings in media; Orica, Bradken and UGL in mining services; and Panaust, Iluka Resources, Amcor and OneSteel in materials. Meanwhile, a Morgan Stanley report describes the US dollar as “bearly” hanging on. It states that the greenback is coming under extreme pressure as the market factors in the likelihood of another bout of monetary easing from the US Federal Reserve. Morgan Stanley is also bearish on the $A, $NZ and yen.