For those Chinese firms who have positioned for a strengthening currency, a recent weakening in the yuan could spell significant earnings hit, analysts at Nomura say.
The renminbi, also known as the yuan has depreciated around 2.7 percent against the U.S. dollar since the start of February, catching many investors off guard as yuan appreciation was widely seen as a one-way bet. It was trading at 6.2164 per dollar on Tuesday.
Many analysts believe the decline may be a temporary blip on a longer-term appreciation path, but there are some concerns that the weakness may become more permanent.
The yuan’s steady appreciation since it was unpegged from the dollar in 2005 led many companies to enter into carry trades, buying yuan assets with funds borrowed in other currencies in the expectation of foreign exchange gains.
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