China Market Strategy : Impact of RMB depreciation on Chinese stocks' earnings

The recent RMB depreciation against the USD has raised investors' concern about the risk and implication on earnings of listed China companies. We run an estimation about the impact of 15% RMB depreciation vs USD on reported earnings of the MSCI China constituent stocks we cover.

    Overall, reported EPS for MSCI China could improve because of RMB depreciation. Energy and Material sectors' EPS could be boosted as their products are priced in USD and costs in RMB.

    Property sector could suffer a lot from RMB depreciation given their huge amount of unhedged forex debt. Other sectors like consumer staples, utilities, telecom could also be negatively affected and financial sector EPS will be quite stable.

    If translated to HKD or USD, there will be an additional negative translation effect on the earnings of the company. This means that P/E could become higher as the stock prices are usually denominated in HKD.