China’s market meltdown: how should corporate treasurers respond to a falling yuan?

by Natasha Lala, OANDA Solutions for Business

With China’s economy and currency in troubled times, Natasha Lala of OANDA Solutions for Business explains how corporate treasurers exposed to the yuan can best manage their business through the market turmoil.

A volatile cocktail of shock government devaluations, unpredictable equity markets and sinking commodity prices, has significantly hit the value of the Chinese yuan, leaving many investors with a major headache. It appears that efforts to bring stability to the currency, such as the Chinese Government relinquishing some of its control over the yuan to the markets, has done little to change things – despite the IMF designating the yuan as an elite global currency, alongside the dollar, sterling and the euro.

The fear is that the weaker yuan could lead other nations to devalue – potentially triggering a global currency war. Already this month, we have seen Japan devalue its yen in the hope of boosting consumer spending. Therefore, if the yuan continues to fall further in the coming months, then other currencies are likely to fall too. All in all, it’s not looking good for investors exposed to China.

But investors aren’t the only ones worried, corporate treasurers exposed to China have equal cause for concern – as tasks including getting accurate prices and hedging foreign exchange (FX) exposures must seem like quite a tall order. In light of this, how exactly should these corporate treasurers go about dealing with the current market volatility?

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