The global rout in emerging markets is taking a deeper toll on companies.
Daimler AG said Monday it’s eliminating 1,500 jobs at its Brazilian truckmaking division as demand for commercial vehicles in the country shows no sign of recovery. That outlook also prompted Ford Motor Co. to temporarily close a car plant and engine factory in Brazil earlier this month. In South Africa, mobile-phone operator MTN Group Ltd. gave up on a plan to repay early about $500 million of debt held in Nigeria, its biggest market, because it can’t get hold of dollars there.
Corporations also are holding off on raising new debt financing, which may delay investments or acquisitions. More than $5 trillion in value has been lopped from equities worldwide since Aug. 11, when China’s unexpected currency devaluation triggered concern about a slowdown there and in other emerging markets. U.S. stocks joined Monday’s selloffs in Europe and Asia as the S&P 500 sank into a correction.
“The pressure to adjust increases,” and companies will be looking harder at cutting costs and getting more efficient in response to the turmoil, said Hans Ola Meyer, the chief financial officer of Sweden’s Atlas Copco AB, the world’s largest maker of air compressors.
For all the drama of plunging stocks, bonds and currencies in emerging markets, companies are unlikely to walk away from those countries, said Rajesh Varma, who helps manage 16 billion euros ($18.5 billion) at DNCA Finance SA in Paris.
“I don’t think companies are going to be pulling out, that would be the most silly thing to do,” Varma said in a phone interview. “There’s still more growth there than there is in developed markets, whether we like it or not.”
The sentiment was echoed by Apple Inc. Chief Executive Officer Tim Cook, who told CNBC’s Jim Cramer in an e-mail that the iPhone maker has seen “strong growth” in China this summer.
Apple’s shares embodied the volatility in the broader market. The stock plunged 13 percent in early trading, only to erase that and gain 2.9 percent after Cook’s reassuring comments, before ending lower by 2.5 percent. Cook said iPhone activations have accelerated in China in recent weeks and the country “represents an unprecedented opportunity over the long term.” An Apple representative confirmed the e-mail.
Meyer, the Atlas Copco CFO, said his company’s strategic interest in China is “just as big as it was two years ago.” The company got about 28 percent of sales from Asia last year, with another 10 percent from Africa and the Middle East and 8.6 percent from South America.
The market slump is a “complete overreaction” and China will continue to grow, said Frank Appel, CEO of Deutsche Post AG, Europe’s biggest mail service. “The fundamentals are still in good shape, our fundamentals are still in good shape, many of our customers are still in good shape,” he said in an interview in Johannesburg.
For some investors, the recent stock rout is creating an opportunity to snatch up shares of companies.
Varma, of DNCA Finance, said he’s considering increasing his holdings of consumer-products makers Unilever NV and Reckitt Benckiser Group Plc after their shares plunged, and he’s already “nibbling away” at shares of Google Inc. and Check Point Software Technologies Ltd.
Executives may see their companies’ own stocks as bargains as well, triggering stock repurchase plans.
Companies inclined to buy back shares are “going to take advantage of these lower prices, and most of those tend to be mature companies,” Dan Morgan, a senior portfolio manager with Synovus Securities Inc., said by phone. “You’ll see more aggressive steps taken by companies that have been holding off a little bit.”
Two companies that Morgan considers likely buyers of their own shares: Hewlett-Packard Co. and International Business Machines Corp.
“Both of these are heavy cash companies,” he said. “I would imagine they would continue to take advantage of the weakness of the market and the weakness of their shares to continue to purchase back their own stock.”
Ian Colley, a spokesman for IBM, didn’t immediately provide a comment.
At Starbucks Corp., CEO Howard Schultz today reassured employees via e-mail that the coffee chain has weathered market volatility before and will be just fine. Even so, it’s a good time to pay extra attention to customers, he said.
“Let’s be very sensitive to the pressures our customers may be feeling, and do everything we can to individually and collectively exceed their expectations,” Schultz wrote.