25 October 2011 at 6:53 GMT
In recent years Asia has grown faster than Europe in terms of GDP (chart 1). Evidently companies have in recent years increased their focus on establishing their Asia-Pacific footprints as they view the region as a main revenue driver. In this theme we focus on the geographical sales split for European companies; moreover we are interested in highlighting which sectors and large cap companies have the largest revenue exposure to the Asia-Pacific region.
Technology and Manufacturing sectors' high Asia-Pacific exposure
Looking at industry exposure (table 1), we see that the Electronic Technology and Producer Manufacturing sectors are heavily exposed to the Asia-Pacific region. European Aeronautic Defence and Space Company (EADS), Ericsson LM Telefon and Alcatel Lucent are some of the largest technology companies heavily exposed to the region. Despite having the largest exposure to this high growth region these entities do not necessarily outperform their peers’ share performance. Both Ericsson LM Telefon and EADS have outperformed their main peers over a 12-month period while Alcatel Lucent’s share performance is below its main peer’s performance. Close behind the top two sectors is Non-Energy Minerals, including companies such as BHP (70.5% of sales from Asia Pacific), Rio Tinto (59.8%) and Xstrata (29.3%). Interestingly, only 4 out of the 10 sectors highlighted have 10 percent, or more, exposure to the Asia-Pacific region. Other sectors are more heavily exposed to North America and Europe.
Latin American footprint
Another interesting observation is that the top two sectors that have the most exposure to Asia Pacific both have above average exposure to Latin America. Latin America, similarly to Asia-Pacific, has experienced high growth in recent years and many global entities have increased their focus on establishing a footprint in this region. A few individual European entities that currently have significant exposure to Latin America are Nestle (6.3%), Anheuser Busch (6.0%) and BASF (6.0%).
Further exploring the data we highlight Asia-Pacific exposure for 10 European large cap companies (table 2). In particular the luxury good conglomerate LVMH Moet Hennessy Louis Vuitton, British American Tobacco and the German chemical & pharmaceutical giant Bayer AG all generate more than 20 percent of their revenues from this region.
Luxury good producers' Asian exposure
Having highlighted a group of large cap European entities, we now look at the price earnings ratio in relation to Asia-Pacific exposure for a few international luxury good producers (chart 2). Bearing in mind that the Asia-Pacific region has produced more growth it doesn’t appear that the higher potential is reflected in these producers’ share prices. If this increased growth trend continues, Swatch Group’s low P/E particularly stands out as it might experience more revenue growth than its peers.
Over exposure - double edged sword
During the current corporate earnings’ season, investors should pay attention to the contribution of the Asia-Pacific region to company revenues. However, investors should note that being heavily exposed to one region can be a double-edged sword, as sudden changes could significantly affect the overall performance of the company. Although most believe that the Asia-Pacific region will continue its torrid growth rate, any slowdown could leave exposed companies highly affected.