China devalued its currency by 1.9% against the dollar on Tuesday. The move had been expected by many analysts, but it’s the largest single shift that Beijing has ever approved, and could signal a big shift in Chinese economic policy.
Some big European companies, especially those exporting luxury goods, are getting hit hard.
A devaluation typically boosts exports and domestic production for the country that’s devaluing. But it’s a double-edged sword. For companies that are providing China with its imports, it’s suddenly more expensive. For a Chinese person with a Yuan income it just got 1.9% more expensive to buy a product denominated in dollars.
Some European companies are getting seriously whacked by the change. Though Tuesday’s move not too large, if it signals a new desire by the Peoples’ Bank of China (PBoC) to weaken the Yuan for a longer period of time, European luxury exporters and car companies will suffer.
German car companies BMW and Daimler, France’s LVMH and Italy’s Salvatore Ferragamo are now all down by between 4% and 6%, as of 3:15 p.m. London time (10:15 a.m. ET).
Here’s how BMW looks:
Europe’s more expensive car manufacturers have found an increasing demand from China’s newly wealthy elite, with a huge market developing. The country overtook the United States to become BMW’s biggest single market last year
And here’s LVMH:
“Rest of Asia,” the region including China as the primary market, is now LVMH’s biggest for revenue, making up nearly a third of the company’s sales.
Here’s Daimler, another European carmaker and the biggest loser on the DAX today:
And likewise, Italian luxury goods firm Salvatore Ferragamo is the biggest lower on the Milan-based FTSE MIB:
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