China-Singapore Jingwei, April 29 (Gao Bining) Recently, under the combined influence of multiple factors, the RMB has depreciated significantly against the US dollar, and once fell below the 6.61 mark for the first time since November 2020.
According to data from the China Foreign Exchange Trading Center on the morning of April 29, the central parity rate of the RMB against the U.S. dollar was 6.6177, down 549 basis points from the previous day.
On the afternoon of the 29th, the exchange rate of RMB against the US dollar rebounded sharply.
As of press time, data from the China Foreign Exchange Trade System showed that the spot exchange rate of the RMB against the US dollar was 6.5890.
Some market views believe that in the context of the divergence of monetary policies between China and the United States, fluctuations in the exchange rate of RMB against the U.S. dollar will continue, and its impact on the foreign trade industry is worthy of attention.
Two-way exchange rate fluctuations affect the expectations of A-share investors
Fluctuations in the RMB exchange rate directly affect the performance of companies with a high proportion of A-share overseas business and their investors.
According to Wind data, judging from the 2021 annual report data, among the 4,799 A-share listed companies, there were a total of 1,754 companies with overseas operating income during the reporting period, accounting for 36.55%.
Among them, 263 companies, including Haier Smart Home, BOE A, China Molybdenum Industry, and Goertek, account for more than 50% of their total operating revenue in 2021, and are highly dependent on overseas business.
Among them, 20 companies including ADAMA A, Huali Group, and Anker Innovation accounted for more than 95% of their overseas revenue.
From the perspective of industry, the above 263 companies are mainly concentrated in electronics, machinery and equipment, chemical industry, medicine and biology and other industries.
Sino-Singapore Jingwei conducted a search on SSE e-interaction and Shenzhen Stock Exchange Interactive with keywords such as "RMB exchange rate" and found that recently, many investors have asked companies to disclose business changes, exchange gains and losses caused by the devaluation of the RMB, and countermeasures against exchange rate risks.
Some investors asked, "The company's overseas business revenue accounts for a high proportion. If the RMB exchange rate continues to depreciate this year, will it bring positive exchange rate differences to overseas business performance?" "What competitive advantages does the company have in the export field? Does the RMB exchange rate depreciate? Will it further enhance the company's export competitiveness?"
Listed companies with a high proportion of export business may benefit from a moderate depreciation of the renminbi.
Such companies generally responded to relevant questions, saying that the devaluation of the renminbi will help improve the price competitiveness of the company's export products to a certain extent, but at present this factor does not have a significant impact on the company's operating performance. Follow the regular reports disclosed by the company.
At the same time, companies with a high proportion of their import business settled in US dollars are more negatively affected by the depreciation of the RMB.
For example, Goertek, whose overseas business accounts for 89.58%, replied to investors that the company's export business is in normal development and has not been significantly affected by exchange rate fluctuations, and the company continues to do a good job in foreign exchange risk management.
Jifeng shares, which accounted for 70% of overseas revenue, replied that as a domestic listed company, the company's presentation currency is RMB. The value of liabilities, etc., has a certain impact on the stability of the company's financial data; and more than 70% of the company's sales revenue comes from overseas, the devaluation of the RMB will have a certain impact on the financial performance of the RMB-caliber consolidated statements.
More use of hedging to manage the risk of exchange rate fluctuations
Against the background of exchange rate fluctuations, exchange gains and losses of listed companies are also a topic of concern.
It is understood that if the company's export business settlement currency is mainly US dollars, when the exchange rate of the US dollar against the RMB rises, the financial accounting exchange rate of assets and operating income denominated in US dollars will rise simultaneously, and certain exchange gains will also be generated.
On the contrary, for listed companies whose revenue comes from overseas business, if there is exchange loss, it may seriously drag down the annual performance.
In order to prevent and control the risk of currency exchange rate fluctuations eroding corporate profits, many listed companies choose to use financial instruments such as hedging to smooth the impact of exchange rate fluctuations on the company.
Previously, at a press conference on foreign exchange receipts and payments data in 2021, Wang Chunying, deputy director of the State Administration of Foreign Exchange, said that in 2021, the scale of enterprises using foreign exchange derivatives such as forwards and options to manage exchange rate risks will increase by 59% year-on-year. The corporate hedging ratio increased by 4.6 percentage points year-on-year to 21.7%.
In the recent exchange rate fluctuations, the keyword "hedging" also appeared frequently in the responses of listed companies.
Many listed companies such as BGI, Hisense Video, Petty, Wen's, and Bomaike responded to the concerns of investors and said that the timely use of exchange rate hedging tools such as foreign exchange hedging can reduce exchange rate fluctuations The impact on the company's foreign exchange profit and loss.
China-Singapore Jingwei query Wind data shows that since 2022, A-share listed companies have successively announced 487 announcements on participating in hedging in the foreign exchange market.
For example, Taoli Bread, a food industry company with a market value of over 18 billion, said that in order to effectively avoid risks in the foreign exchange market and prevent exchange rate fluctuations from adversely affecting the company's financial status and operating performance, the company and its holding subsidiaries plan to carry out foreign exchange hedging business. No more than 150 million yuan or equivalent foreign currency, and the source of funds is self-owned funds.
The board of directors of Ledman Optoelectronics agrees that the company and its subsidiaries use their own funds to carry out foreign exchange hedging business transactions with a total amount not exceeding RMB 350 million (or equivalent in other currencies).
Two-way exchange rate floating is the norm
After the RMB exchange rate against the U.S. dollar continued to fall, the People's Bank of China announced on April 25 that it would cut the foreign exchange deposit reserve ratio of financial institutions by 1 percentage point from May 15.
After the central bank released a support signal, the exchange rate of the yuan against the dollar once rebounded.
Recently, the relevant persons in charge of the central bank and the State Administration of Foreign Exchange have made intensive voices on the exchange rate, and have repeatedly mentioned that the RMB exchange rate will still show two-way fluctuations in the future, and will remain basically stable at a reasonable and balanced level.
As the exchange rate fluctuates in both directions, the specific trend and range of changes are difficult to predict. Enterprises are also required to take the risk of exchange rate fluctuations into business considerations while focusing on their main business.
In this regard, relevant documents have also been issued recently.
On April 18, the Central Bank and the State Administration of Foreign Exchange jointly issued the "Notice on Doing a Good Job in Financial Services for Epidemic Prevention and Control and Economic and Social Development", which mentioned improving enterprise exchange rate risk management services.
Specifically, financial institutions should respond in a timely manner to the exchange rate hedging needs of foreign trade enterprises and other market players, support enterprises to expand RMB cross-border settlement, optimize the management and services of foreign exchange derivatives business, and reduce the cost of hedging and preserving value for enterprises.
Encourage qualified regions to strengthen government-bank-enterprise cooperation, explore and improve the exchange rate hedging cost sharing mechanism, expand the government financing guarantee system to provide enterprises with guarantees for trade financing and exchange rate hedging business, and improve the ability of enterprises to cope with exchange rate fluctuations.
(The opinions in this article are for reference only and do not constitute investment advice. Investment is risky, and you need to be cautious when entering the market.)