SuperModels Community
Join the discussion in the MSN Money SuperModels Community.
Related Resources
See which industries are in/out of favor
View the top-rated stocks
Read the latest news in Market Dispatch
Post your comments at the Politics and the Market Message Board
SuperModels
Recent articles:
• A fund fires a winner -- and keeps it quiet, 3/24/2004
• How 2004s winning stocks were born, 3/17/2004
• The secret power behind America's top companies, 3/10/2004
More...
| | SuperModels
For American brands, the world turns ugly
As U.S. politics erode global good will toward U.S. products, the world's most recognized companies could suffer most. Here are 5 big-caps with a more isolationist bent.
By Jon D. Markman
Most countries around the world, unless theyre run by man-eating communists, are granted most favored nation trading status by the United States. This signifies that they have normal economic relations with the worlds greatest financial power and are subject to the same tariffs and legal treatment as peers when their goods enter the country.
Following its unpopular pursuit of the Iraq war, however, not to mention high-profile corporate scandals ranging from Martha Stewart to Tyco (TYC, news, msgs), the United States now appears to be gaining the status of least-favored nation around the world as trading partners re-envision their relationships through the prism of animus and distrust rather than amity.
The most recent example came last week when the European Union slapped a record antitrust fine against Microsoft (MSFT, news, msgs), one of Americas leading technology companies, for reasons that seem animated as much by anger and suspicion as by a strict reading of law. (Microsoft publishes MSN Money). Yet other examples of the international turn of the screw are becoming apparent, and that should be worrisome for investors in U.S. multinational-branded manufacturers and retailers such as Coca-Cola (KO, news, msgs), Ford (F, news, msgs) and Starbucks (SBUX, news, msgs).
Poll: U.S. popularity plunges
Not long ago, the market research company RoperASW conducted a survey of 30,000 people in 30 countries that sought to determine foreigners opinions of the United States and found they had undergone an historic plunge. According to a report in the magazine American Demographics, the survey found that only 15% of Indonesians, for instance, felt very or somewhat favorable toward the United States, compared with 61% who held that view a year ago.
Not surprisingly, Islam-dominated countries had the greatest jump in negative vibes toward things American. But the number of Russians who saw the United States in a favorable light also sank 25 percentage points in a year, while the share of French, Germans and Italians with positive feelings toward America fell by 20, 16 and 10 percentage points, respectively. The magazine said the study pointed out that Canadians and the British likewise felt less positive toward the United States than in the prior year.
Worse in many ways for American multinationals is the increasing number of global consumers who told surveyers they felt distant from American culture: There was an average jump of two percentage points from 1999. The strongest increases were in Taiwan (20-point jump), Argentina (17-point jump), Thailand (13-point jump) and France (10-point jump). Meanwhile, the integrity of American business leaders also has come under attack. RoperASW reports that when survey respondents in foreign countries rank their trust in leading companies worldwide, American organizations now cluster at the bottom of the list.
Even Latin America, long a bulwark of support for U.S. products, has begun to turn against American economic might with resentment over Iraq bubbling over into open criticism of immigration policies and an attempt to block a new hemispheric trade agreement. Brazils ambassador to the United States told the New York Times in January that his country feels severely penalized by U.S. restrictions on his countrys steel and agricultural products.
Watch the top line
In addition to these obvious sources of distrust, there appears to be a growing sense of unease overseas about the growing extension of U.S. military power in their lands. According to a new book by Chalmers Johnson, a University of California-San Diego professor, the Pentagon now occupies 702 bases in 130 countries on every continent but Antarctica. In the book The Sorrows of Empire, Johnson says Americans do not recognize the extent to which their country has created a global baseworld of garrisons that intrude on trading partners activities through a vast network of soldiers, spies, technicians and civilian contractors.
While such discomfort may make it harder for American manufacturers to sell the stateside sizzle on products like Nike sneakers to the worlds emerging middle classes, it is doubly hard for them to overcome poor publicity when things go wrong. Coca-Cola discovered this the hard way in early March when it was forced to abandon the scheduled rollout of its Dasani bottled water in continental Europe following a botched launch in the United Kingdom. The company yanked Dasani from British store shelves last week after being pilloried for its revelation that not only was the product merely enhanced tap water, but it also contained abnormal amounts of a chemical called bromate that can harm people who consume it regularly over an extended time.
If there has been a deterioration in American companies' overseas income, it likely will be masked in the upcoming earnings season by the extreme weakness in the dollar. When the dollar is cheaper than the euro, yen, rupee or zloty, U.S. goods cost less in foreign countries, boosting sales. So when first-quarter reports start pouring out next month, investors should pay special attention to big companies international top line, not earnings, for signs of potential deterioration.
Good will seemingly in short supply
Of course, it is possible that negative views will not last much longer and that a swing back in favor of U.S. popularity is overdue.
Mark Headley, portfolio manager at the Matthews Funds and an expert on the Chinese, Korean and Japanese markets, says his contacts distinguish between American consumer products and American politics. Most Asians I talk to hate Bushs policies -- absolute antipathy, he said. In South Korea, they think he has made the Korean peninsula more dangerous. In China, they think he has goaded the Taiwanese to be more independent and confrontational. Anywhere there is a Muslim population they are extremely unhappy with his policies across the board. And in Japan, there are tremendous misgivings about sending troops to a forward deployment for the first time since World War II. But none of this has stopped Chinese accountants or factory managers from buying cool new Motorola (MOT, news, msgs) phones or stopped the Japanese from eating at McDonalds (MCD, news, msgs).
If you go beyond the consumer to the wholesale and distribution level, however, Headley says American companies are losing their edge of good will when competing against European or Asian companies for contracts ranging from airliners to concrete. In Korea and Japan, they have always liked American troops for their stabilizing influence, but that has evaporated, he said. They now see us as untrustworthy, dont understand our actions and blame us for the breathtaking rise in the price of their most expensive imported product -- Middle Eastern oil.
The greatest danger, Headley said, is that rising resentment has pushed the moderates in Muslim-dominated democracies to act more anti-American to keep pace with their constituencies. Because Asia is still a business-oriented place, there have been no open boycotts of U.S. goods, but a backlash is certainly brewing and could boil over with any additional provocation.
Companies that might potentially feel the greatest pain would be the ones that currently enjoy the greatest success: Altria Group (MO, news, msgs), maker of Marlboro cigarettes; Coca-Cola; and Procter & Gamble (PG, news, msgs). In contrast, large-cap companies that might potentially feel the least impact would be ones with the smallest exposure to foreign consumers or wholesale buyers, such as home builders, utilities, health-care insurers and specialized retailers. Ive listed five in the following table.
| Top-rated large-caps with least exposure overseas | | Company name | Rating | Market cap | March 30 price | | Symantec (SYMC, news, msgs) | 10 | 14.3 billion | $47.26 | | Anthem (ATH, news, msgs) | 10 | 12.1 billion | $90.57 | | CenterPoint Energy (CNP, news, msgs) | 10 | 3.4 billion | $11.35 | | Pulte Homes (PHM, news, msgs) | 10 | 6.8 billion | $55.71 | | AutoZone (AZO, news, msgs) | 10 | 7.2 billion | $85.87 |
|
American companies' loss of international appeal could lead to gains for their European and Asian counterparts. Indeed, if you can visualize a future tipping point of distress -- such as a Pentagon raid on Iran or other aggressive American geopolitical initiatives -- it might even make sense to consider "pairs trades" in which one went long a foreign multinational such as Toyota Motor (TM, news, msgs) and shorted a U.S. equivalent such as General Motors (GM, news, msgs). That may seem extreme, but traders may decide they prefer to drive with world traffic than to follow the Stars and Stripes into harms way.
Fine Print
Foreign consumer and financial retaliation against American products over U.S. political and economic policies constitutes a potential down card of the type that I wrote about last March 19 in my column titled Little clues can lead to big profits. In that column, veteran trend-spotter Jim Williams of the Williams Inference Center was remarkably prescient. In the week that later proved to be the big reversal for the market from super-bearish to super-bullish, he said his work showed that investors were at the moment overly focused on risk rather than opportunity. The hunt for opportunity is missing, he said, and it will soon be time to look for the next bull market, possibly in commodities such as natural gas, gold and base metals. That was a great call. . . . Later in the year, in October, I returned to Williams and, in the column The Devil wears pink, I focused on his view that the resurgence of the color pink in apparel and merchandise suggested that consumers had donned rose-colored glasses at a time of discomfort. Now comes the Wall Street Journal, which published a Page 1 feature (click here; subscription required) on Monday this week on that very subject. . . . Im telling you all this because a brief research note from Williams was the seed for todays column on the emergence of the United States as a least-favored nation.
Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jdmmail@fastmail.fm. At the time of publication, Markman had a position in the following securities mentioned in this column: Starbucks, Symantec, Microsoft.
|
