Who wins and who loses with new yuan

China’s signal that it will let its currency appreciate is a boost to consumer firms, airlines and insurers, but may dampen the outlook for exporters and commodity producers.

The immediate winners from a yuan revaluation would be companies that buy raw materials and other inputs overseas, such as airlines purchasing jet fuel and automakers sourcing parts.

Chinese exporters are likely to be the hardest hit. A relatively mild yuan appreciation against the U.S. dollar of about 5% would cause losses at these companies, says a Reuters poll conducted at China’s top trade fair in April. Following is a list of some likely winners and losers from any yuan appreciation.

CHINA AIRLINES - WIN

China’s three top carriers, Air China, China Eastern Airlines and China Southern Airlines, which borrow in foreign currencies to pay for their aircraft but generate revenue in yuan, could benefit the most. Airlines also use dollars to buy fuel.

Deutsche Bank estimates a 1% yuan appreciation would boost Air China’s 2010 net profit by more than 10%, China Eastern Air’s by 15% and China Southern Air’s by 20.6%.

AUTOMAKERS - WIN

Foreign automakers which sell cars in the world’s largest vehicle market, such as BMW, Volkswagen, General Motors, PSA Peugeot Citroen, the Renault-Nissan alliance and Fiat, should also gain.

BMW would benefit the most if the yuan continues to rise against the euro — an outcome that’s far from certain — as its auto manufacturing joint venture with Brilliance China imports about half its parts, mainly from Germany.

FOREIGN COMMODITY FIRMS - WIN

Commodity prices jumped to a five-week high after China, the world’s third-biggest economy, eased its currency peg to the dollar, spurring bets that global demand for energy, industrial metals and crops will increase.

The reason is simple: A stronger yuan increases buying power.

Ending the currency peg will help curb inflation and shift investment toward service industries from exports and manufacturing, the People’s Bank of China said. The country is the world’s biggest consumer of copper, soybeans, pork and cotton and the second-largest user of corn and sugar.

CONSUMERS, TECHS - WIN

U.S. firms such as General Electric and Proctor & Gamble are likely to make currency-exchange gains when their China profits are converted into U.S. dollars.

A spokeswoman for GE, which makes many of the products it sells in China in that country, said the U.S. conglomerate does not expect “any material impact” to its earnings from the change.

U.S. furniture retailer Ethan Allen Interiors Inc. believes the move will be either neutral or positive, chief executive Farooq Kathwari said at the Reuters Global Retail Summit in New York.

Yum Brands Inc., which owns the KFC and Pizza Hut fast-food chains and generates more than one-third of its profits from its 3,500 locations in China, regards the move as good news, said spokesman Jonathan Blum.

“China represents our No. 1 growth opportunity and we expect this to be a very positive development over the long-term,” Mr. Blum said.

FOREIGN HEAVY MACHINERY MAKERS - WIN

The world’s largest maker of earth-moving equipment, Caterpillar Inc., could be a major winner. The U.S. machinery giant sells billions of dollars worth of machinery and products to China each year. Its group president said on Saturday that Beijing’s move would help lift U.S. exports.

Second-ranked Komatsu said that every 1% rise in the yuan would boost its operating profit by ¥1.1-billion (US$12.1-million).

LUXURY FIRMS - WIN

A firmer yuan would likely boost other Asian currencies as a strong yuan is seen by investors as a pledge of confidence for Asia’s growth. That should help luxury goods makers, whose imported products will be cheaper across the region, just as more Asians benefit from increased wealth.

At the top of the list are those luxury goods companies for whom Asia is a key market, such as Tiffany & Co., Bulgari SpA, Hermes International SCA and LVMH Moet Hennessy Louis Vuitton.

CHINESE FINANCIALS - WIN

Chinese insurance companies such as China Life and Ping An Insurance should benefit as a yuan revaluation is expected to boost China’s domestic A-share stocks, which account for a large chunk of their investment portfolios.

Chinese insurers can put up to 25% of their total investable assets into stocks, but most keep it below that level.

FOREIGN RETAILERS - LOSE

Big retailers that source from Asia, such as Hennes & Mauritz, Target and Wal-Mart Stores Inc., would see a firmer yuan push up their production costs.

It could also hit Walt Disney Co., which has signed a memorandum of understanding to build an amusement park in Shanghai, as it would have to spend more in U.S. dollars to fund investments.

Aeon Co Ltd. said yuan appreciation would have an impact as Japan’s second-biggest retailer imports a large percentage of its products from China. Spokesman Eiichi Yamatani said Aeon would continue to diversify its product manufacturing base due to rising labor costs in China.

COMMODITY FIRMS - LOSE

China’s commodity producers could be hardest hit over the longer term.

Companies such as Aluminum Corp. of China, Zijin Mining and PetroChina face dollar-linked prices for their output, but their costs are in yuan.

If the yuan does strengthen, these firms would find their revenues falling while their costs remain steady.