US companies urged to change focus as China's economic slowdown starts to hit their growth
It's official. China's slowdown is starting to hurt corporate America.
As the world's second-largest economy – and growing – China is seen as a primary source of revenue growth by the largest US companies. But a country that once boasted double-digit growth is now growing at a more modest 7.5pc rate, its credit markets are overheated and fears of a housing bubble remain.
The slowing has occurred as major US names garner more revenue from Asia. Among 18 S&P companies with large exposure to China, 12 of them were underperforming the broader S&P 500 index year-to-date.
"The China impact is becoming more and more significant because the [US] companies' exposure has grown so much over the years," said Robbert van Batenburg, director of market strategy at Newedge in New York.
Those concerns have caused investors to reduce their global emerging-markets equity exposure to its lowest in 12 years, according to a Merrill Lynch survey.
Some analysts say companies can withstand China's slowdown by shifting their focus to programmes funded by the central government, which are designed to lift the middle-class segment of the population to 45pc or more later this decade from about 40 to 41pc currently.
If the companies target the middle class, they can enjoy steady growth in their sales in China, but if they continue to focus on export-oriented projects funded by cash-strapped local governments, they will be disappointed, according to Nicholas Heymann, analyst at William Blair in New York.