China’s recent decision to devalue the Yuan will have the expected negative effect on luxury goods purveyors, commodity producers, as well as any non-Chinese company that exports its products into China.
Instead of panicking – as most investors are likely to do – and selling your shares in these businesses, now may be the time for long-term investors to step back, assess the situation, and possibly take advantage of any fall in share prices.
Foreign exchange fluctuations are part and parcel of doing business outside of your home market. Take a close look at the quarterly or annual reports of any large multi-national consumer goods companies – or any company that sells its products and services internationally – and you are likely to find periods in which the business benefited from forex movements and other times when it got stung by them.
Furthermore, many large multinational companies have an array of ‘weapons’ in their arsenal to mitigate such events; scaling back production, postponing expansion plans, re-jigging product design, size, formulations, et cetera, to ensure their products remain affordable and attractive to their customers.
I’m not saying to completely ignore the effect of forex movements on a company’s performance, but to take such movements into perspective. If the underlying operating model of the business has not changed dramatically, then now may be the time to acquire more shares of your favorite company. If you liked a company at $20 per share, all things being equal, why wouldn’t you like it at $18 per share?