PetroChina Protected Against Currency Devaluation

Another thoughtful investor wonders,  "What would happen to the stock price, earnings, dividend, etc. if the Chinese Yuan were to be devalued?"

Like most tough questions, "It depends."

Theoretically, devaluation should not affect the value of PetroChina stock.  Oil is an international commodity, the most important, after money itself.  The fundamental value of oil production is independent of currency.  Yet, price controls, taxes and regulations can distort that value.

The most immediate question would be,  "Could PetroChina charge world prices for its own oil production?"

Next, "Could higher raw material price be passed on in refining/marketing?" 

We think the answer to both questions should be,  "Yes."  Yet, there might be a lag in time.

Dividends would be somewhat less sensitive than earnings.  Management has discretion to maintain dividends subject to the approval of owners.

Stock price may already reflect some devaluation risk.  A low McDep Ratio and low EV/Ebitda give weight to the low P/E and high dividend yield as indicators of value that offers enough appreciation potential to offset risk.

The question of devaluation of the Yuan comes up as the U.S. dollar continues strong.  Americans have been blessed with an appreciating currency.  Yet economic trends inevitably move in cycles.  Just when we get confident we might be surprised.  Energy investments offer protection against currency inflation whether it is in the dollar, or any other denomination.

Excerpt from June 18, 2001; Meter Reader: Calm Returns