Credit Suisse research analyst Richard Hitchens has taken a look at Australian shares and tried to work out what a lower Australian dollar will mean.
He says the foreign exchange strategist at Credit Suisse believes the AUD/USD could weaken to 86 US cents over the next year.
“Falling commodity prices, in conjunction with narrowing interest rate differentials (especially as the Fed ponders tightening) are likely to weigh on the currency. Also, as the RBA has noted, the currency is substantially overvalued on almost all conventional models, and at some point in time, will need to mean-revert. Accordingly, on this basis investors would currently tilt to low AUD/USD beta stocks,” Hitchens said.
So, if you think the Australian dollar will weaken further against the US dollar, these are the 10 companies most affected:
- G8 Education
- Leighton Holdings
- TPG Telecom
And these are the least affected:
- Paladin Energy
- Ten Network
- Whitehaven Coal
- Bluescope Steel
- Recall Holdings
Hitchens says it is quite difficult to accurately estimate the impact of stock earnings sensitivities to currency moves because of natural and derivative hedging, as well as secondary supply and demand effects.
So Hitchens concentrated more on price rather than earnings in his calculations.