China non-financial A-share sectors: CNY appreciation has made FX losses a material H126 earnings drag for export-exposed A-shares, but UBS sees limited long-term intrinsic-value impact.

Overview

This China equity strategy report examines whether unusually large foreign-exchange losses among non-financial A-shares should concern investors. UBS concludes that they are a substantial near-term earnings and sentiment issue, especially for overseas-exposed sectors, but should be assessed through operating competitiveness and margins rather than treated as a lasting impairment of core business value.

Core views

UBS identifies a sharp rise in FX losses as CNY appreciation coincided with greater overseas exposure among Chinese corporates. Since its cyclical low on 9 April 2025, the CNY had appreciated about 9.5% against the US dollar, with USD/CNY briefly falling below 6.7 on 21 September 2026. Despite this, USD-denominated Chinese exports grew 19% year on year in 8M26, supported by technology products, automobiles and related products, and electrical equipment. The report explains that exporters with predominantly RMB costs but foreign-currency revenue translate those revenues into fewer yuan when the CNY strengthens, reducing reported profit and potentially compressing margins. For non-financial A-shares, aggregate FX losses reached Rmb107bn in H126, equivalent to -5.5% of net profit. UBS describes this as the highest absolute loss since 2015 and the largest loss-to-profit ratio since 2016, compared with an average of only -0.4% over 2015-25. Sector patterns support the exposure mechanism: sectors with high overseas revenue contribution broadly overlap with those most affected by FX losses. H126 FX losses exceeded 14% of net profit in automobiles, building materials, light manufacturing, electrical equipment, machinery, household appliances and conglomerates; automobiles recorded -22.5%. The first driver is the expanding and relatively profitable overseas business mix. Overseas revenue contribution for non-financial A-shares rose to 18.7% in 2025 from 9.5% in 2010, while overseas gross profit margin was 2.8 percentage points above domestic gross profit margin in 2025, widening from 2.2 percentage points in 2024. UBS expects overseas revenue to reach about 25% of total A-share revenue by 2030E. Overseas investment has also continued: technology-company investment in ASEAN electronic components increased 90% year on year in H126, while Latin America projects rose to eight from six in H125, mainly reflecting Brazil. The second driver is limited hedging. SAFE reported a Chinese corporate FX hedging ratio of 30% in 2025, which UBS sees as leaving substantial room for improvement. The report contrasts this with evidence that 55-64% of large US non-financial firms with foreign sales used FX derivatives in a 1990-95 study, about 80% of listed Japanese manufacturers used market-based FX hedging in a 2021 survey, and 89% of S&P 500 constituents and 90% of Nikkei 225 constituents used derivatives according to ISDA's 2025 analysis. UBS argues that underdeveloped FX-risk management leaves A-share firms more exposed to exchange-rate moves. UBS distinguishes accounting earnings effects from the value of underlying operations. FX gains and losses arise from translation and settlement of foreign-currency transactions, monetary assets and liabilities, and overseas operations. The report argues that such effects generally do not materially change the intrinsic value of a company's core business; analysts should therefore look beyond current-period net profit to product competitiveness, gross margins, overseas market share, pricing and whether currency moves alter operating conditions. This view is consistent with the small average FX effect on aggregate profits over 2015-25. From a market-strategy perspective, however, the current scale of losses can weigh on sentiment. UBS notes that the CNY appreciated 4.4 percentage points against the US dollar and 6.7 percentage points against the euro year to date, while the CFETS RMB Index rose 4.6 percentage points. UBS's APAC FX research estimates the CNY effective exchange rate is undervalued by 8% based on China's global export share and puts long-term fair value for CNY-USD at 6.15. If CNY appreciation persists while the overseas revenue mix rises, UBS believes FX losses could become a sustained earnings headwind. The report says companies can mitigate exposure through stronger hedging, technology and brand upgrades that improve pricing power, and localized overseas production that supports supply-chain resilience and market adaptability.

Analysis framework

UBS aggregates reported FX gains and losses for non-financial A-shares, compares the H126 loss-to-profit ratio with history and reviews differences across sectors. It then links FX exposure to overseas revenue share, domestic versus overseas gross margins, CNY moves and hedging participation, before separating accounting translation effects from operational effects on competitiveness, margins and market share.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Comparison of overseas revenue exposure, overseas versus domestic gross margins, FX losses and sector earnings.

  UBS uses revenue mix and margin differences to show why a stronger CNY has a larger reported-profit effect on sectors with more foreign-currency revenue and RMB costs.

• Competition & strategyValue chain analysis

  Assessment of competitiveness, pricing power, localization and supply-chain resilience.

  The report evaluates whether FX moves affect underlying operations through product competitiveness, gross margins, market share, technology upgrading and proximity to end markets.

Key data

• Non-financial A-share FX lossesRmb107bn in H126Equal to -5.5% of aggregate net profit; the highest absolute loss since 2015.
• Historical FX loss ratio-0.4% average in 2015-25Compared with -5.5% of aggregate net profit in H126.
• CNY appreciation since cyclical lowc9.5% against USDFrom 9 April 2025 to 21 September 2026.
• China exports19% YoY growth in USD terms in 8M26Supported by technology products, automobiles and related products, and electrical equipment.
• Overseas revenue share18.7% in 2025; c25% in 2030EUp from 9.5% in 2010 for non-financial A-shares.
• Overseas gross-margin premium2.8ppt in 2025Overseas GPM exceeded domestic GPM, versus a 2.2ppt premium in 2024.
• Corporate FX hedging ratio30% in 2025SAFE figure cited by UBS.
• Automobile-sector FX losses-22.5% of net profit in H126The largest cited sector loss ratio among high-overseas-exposure industries.

Impact & implications

UBS says the immediate issue is a reported-profit and investor-sentiment headwind for export-oriented A-share sectors, not necessarily a reduction in core-business value. The longer-term implication depends on whether CNY appreciation and overseas revenue growth persist and whether companies improve hedging, pricing power, localization and risk management.

Risks

• Persistent CNY appreciation alongside rising overseas revenue exposure could turn FX losses into a sustained corporate-earnings headwind.
• China equities face risks from a hard landing in the property market, currency-depreciation-related capital outflows and slow structural reform progress.
• Policies that inadequately address these risks could shock the market; excessive stimulus could hinder the shift toward consumption and increase government and state-owned-enterprise debt.

What to watch

• Whether CNY appreciation persists against major trading-partner currencies and the effective exchange-rate basket.
• Whether FX losses remain a large share of non-financial A-share earnings as overseas revenue exposure rises.
• Changes in corporate FX hedging adoption and risk-management practices.
• Whether currency moves affect product competitiveness, gross margins, export pricing and overseas market share.