U.S. companies with China exposure difficult to find

Because of the difficulty many individual U.S. investors may find in buying stocks listed in China or Hong Kong of Chinese companies, some investors have tried to buy U.S. companies with revenue exposure in China instead. Many investors favor this strategy for the additional reasons that they believe U.S. companies will be more transparent and likely have more dependable and trustworthy management. Numerous corporate scandals in the U.S. make the Red Cat Journal somewhat skeptical of the second point. However, the youth and fast-growing nature of many companies in China does often mean Chinese companies can be riskier investments. And the first point remains – it is difficult for many U.S. investors to directly access foreign-listed shares.

But if one tries to find well-established companies headquartered in the U.S. with a large revenue exposure to China, it is not easy. You can find many ADRs, which represent ownership in a Chinese company, or U.S. listed shares of Chinese companies. However, to find a large U.S. company with large revenue exposure in China, pickings are slim.

Morgan Stanley recently published a list of such companies. Looking at the list, you find that a large number are technology companies. Since a lot of technology products are manufactured in China, this is not surprising. However, since many of the finished technology products made in China are exported back to developed countries, the net revenue exposure is likely to be much lower than the superficial direct revenue exposure would suggest. Here are the top ten in Morgan Stanley’s list:

  1. Advanced Micro Devices, 41%
  2. Nvidia, 31%
  3. Broadcom, 27%
  4. Maxim Integrated, 22%
  5. Yum Brands, 21%
  6. LSI Logic, 20%
  7. PMC-Sierra, 19%
  8. Linear Technology, 18%
  9. Micron Technology, 16%
  10. Intel, 14%

Of those ten, only Yum Brands is not a semiconductor technology company! As you go further down Morgan Stanley’s list, you find the China exposure begins to drop below 10% rather quickly. After Yum Brands, the next non-technology name is Wrigley, with a 10% exposure. That isn’t helpful since Wrigley is going to be taken over by Mars. After Wrigley, you find the next non-tech name is Cummins, with a 9% China exposure, and then Caterpillar, with a 7% exposure. Even Coca-Cola has only a 6% exposure. It seems to get China exposure, a U.S. investor may still be better off buying a Chinese company that has its primary listing in the U.S. or that has an ADR.