China’s unexpected move to devalue its currency this week is bad news for big businesses that sell a lot of goods to the developing nation.
With the renminbi weaker, imported goods become more expensive for Chinese consumers and business that operate in the country.
Luxury car maker BMW is among the global companies that do a lot of businesses in China.
Unfortunately, they were caught off guard by China’s move too.
“The Chinese renminbi is likely to remain relatively closely coupled with the US dollar over the coming year,” the company said in March.
According to Credit Suisse, the company generated 22% of its sales and 32% of its free cash flow in China. The renminbi move is a huge deal for them, and Credit Suisse said the outlook isn’t too bright.
“In our view [Monday’s] market reaction (stocks down ~4%) was not overdone, as it purely reflected potential earnings impact (imports/translation); thus does not even take into account potential impact on regional supply/demand and pricing,” Credit Suisse’s Alexander Haissl and Fei Teng said.
BMW’s stock has fallen over 7% since Monday on the German market, from $US92.98 to $US86.19 on Thursday.
To the company’s credit, it did say that it expected something similar to the current move long-term.
“In the long term, however, it seems likely that volatility will increase, following the announcement that capital markets in China are to be liberalized.”
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