(April 28): Foreign-exchange losses from yuan conversions are weighing on Chinese companies’ profits, underscoring the currency’s strength as an emerging risk for earnings.
Goldman Sachs Group Inc said optical supplier Eoptolink Technology Inc’s first‑quarter profit growth missed estimates, largely due to foreign-exchange losses, while Citigroup Inc attributed Sungrow Power Supply Co’s profit decline to a 400 million yuan forex loss.
The yuan’s 1.4% gain against the dollar in the first three months of the year — Asia’s best performer — is turning into a headwind for companies with large overseas exposure, compounding cost pressures from higher energy prices. These challenges may cap the rebound in Chinese equities, which have already started to trail regional peers as other Asian markets recover from the initial shock of the Iran conflict.
Eoptolink shares tumbled after the profit miss while Sungrow Power shares slipped following a drop in earnings.
“In the short term, exchange rates may experience notable fluctuations due to the impact of cost and price factors arising from geopolitical conflicts, which will affect businesses,” said Shen Meng, director at Chanson & Co. While the long-term impact may be limited, concern remains on the uncertainty over when the war may end, he said.
See also: Asia’s beaten-up currencies gain traction after defensive moves
The local currency extended gains to a three-year high in April, buoyed by China’s swelling trade surplus, improving economic resilience as well as the central bank’s growing tolerance for yuan strength. The yuan may strengthen to 6.2 to 6.4 per dollar by year-end, according to Eurizon SLJ Capital.
The onshore yuan traded at 6.8272 per dollar as of 1.14 pm on Tuesday.
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