This is a guest post submitted by Vincenzo Desrochesto.
In the past few months the falling price of the Euro has caught the attention of all market professionals that follow the financial markets. From its high of over 1.60 in July of 2008 against the United State dollar, the Euro is now barely above the 1.20 level. The fall of the currency has been due because of the debt issue facing Greece, Spain, Portugal, and a few other European Union nations. Recently the Euro has been holding steady in a trading range between 1.24 and 1.21 versus the U.S Dollar.
It will be up to the politicians of the European Union nations and the International Monetary Fund to come up with solid plan to help out the debt laden nations with their financial problems. If the IMF and other E.U. countries cannot come up with a plan, the Euro does risk falling further against the U.S Dollar and other all major currencies. With many of these E.U. nations needing financial support from their neighbors, consequently the Euro Dollar has become weaker. The weaker Euro has had a positive correlation with the Chinese Solar stocks. Both the Euro and the Chinese solar sector have been moving in the same direction over the past few months. However as the solar companies continue to make profits; their stock should rise before the Euro.
Major Chinese solar stocks including: LDK Solar Co. Inc. (LDK), Suntech Power Holding Co Ltd. (STP), and Yingli Green Energy Holding Co Ltd. (YGE) have all been trading lower as the Euro has dropped. The Euro Dollar began its trend lower beginning around December of 2009; the Chinese solar stocks soon began trading lower, following the Euro, in January of 2010. Investors can see the correlation that the solar stocks and the Euro have by using forex charting software and learn to trade forex with the charts of the various Chinese Solar companies.
Some charting software will allow the investor to overlap one chart on top of the other. This will show the positive correlation that both the currency and stock price have. Suntech Power Holdings Co. reported its earnings on June 3rd 2010, included was a loss of $24.5 million due in part because of the depreciating Euro Dollar against the U.S. Dollar. Even though Suntech’s profits jumped almost ten times to $20.7 million from $2.1 million in the year ago period, investors and market professionals were still concerned about the Euro and the issues with the European markets going forward. The stock made a small move upward, but has since fallen back in its range near the 52 week low of $9.05 a share.
All the Chinese solar stocks have fallen back party due to in part because the equities market has been in a mild correction. LDK was also able to reported higher sales and better gross margins. Revenues rose to $347.6 million from $282.3 million in the year ago period. The company was also forecasting full year revenues of between $1.6 and $1.7 billion. Even with the impressive revenue numbers, LDK Solars’ stock price is still hovering around the 52 week low of $5.06 a share. Again this is somewhat due to the unsteady market conditions, related to debt problems occurring in the E.U. The same situation is also occurring with YGE Holding Co. The company is still currently trading near the lows of the past few months, after experiencing a selloff during the month of May.
At the moment there is a clear positive correlation between the Euro Dollar and the Chinese solar stocks, I do not see it lasting into the future. The revenues and profits being generated by the Chinese solar companies are improving year over year. Solar power as an energy source is gaining popularity as a way to produce energy for cities or towns. The solar stocks have been under significant pressure for the past month and are due to bounce back. The decline in the Euro has hurt these companies financially; however it should only amount to a small percentage of future revenues going forward. The increased revenues that the Chinese solar companies are reporting this year, and the revenue projections for next year, will minimize the losses from exchange rate issues. When the Euro starts to rebound on good news from the European Union, Chinese solar stocks will make a strong recovery.
