FX losses among non-financial China A-share companies: UBS sees China A-share FX losses as a near-term sentiment drag, not yet a core-value problem

Overview

UBS examines whether unusually large FX losses at non-financial A-share companies warrant concern. It concludes that the H126 impact is meaningful for reported earnings and market sentiment, but that investors should distinguish translation-driven profit effects from underlying operating competitiveness and assess whether the pressure becomes structurally persistent.

Core views

UBS finds that the stronger CNY has produced an unusually large reported earnings drag for non-financial A-shares. USD/CNY briefly fell below 6.7 on 21 September 2026, and the CNY had appreciated about 9.5% against the USD since its 9 April 2025 cyclical low. In H126, aggregate FX losses reached Rmb107bn, equivalent to 5.5% of non-financial A-share net profit. This was the highest absolute loss since 2015 and compares with an average FX-loss impact of only 0.4% of aggregate net profit over 2015-25. UBS considers the current drag sufficiently large to affect perceptions of earnings even though China’s USD-denominated exports remained resilient, growing 19% year-on-year in 8M26. The report identifies two drivers. First, companies have become more exposed to overseas revenues precisely as the CNY has strengthened. Overseas revenue accounted for 18.7% of non-financial A-share revenue in 2025, nearly double the 9.5% share in 2010, and UBS expects the share to reach about 25% by 2030E. Overseas operations have also generally carried higher gross margins: the aggregate overseas gross-profit-margin premium widened to 2.8 percentage points in 2025 from 2.2 percentage points in 2024. A stronger CNY therefore translates foreign-currency revenues into fewer yuan for companies whose costs remain mainly CNY-denominated, compressing reported margins and net profit. UBS notes that 20 of 31 first-level industries had higher overseas than domestic gross margins in 2025, including premiums of more than 7 percentage points in media, pharmaceutical and biotechnology, machinery, computer, non-ferrous metals, communications and electronics. The sector evidence is consistent with this transmission mechanism. Sectors with high overseas-revenue contributions broadly overlap with those suffering the largest H126 FX-related earnings headwinds. FX losses exceeded 14% of net profit in automobiles, building materials, light manufacturing, electrical equipment, machinery, household appliances and conglomerates; automobiles recorded the largest burden at 22.5% of net profit. UBS also notes CNY appreciation of 4.4 percentage points against the USD and 6.7 percentage points against the euro year to date, while the CFETS RMB Index rose 4.6 percentage points. The result is a broad translation impact for exporters and companies earning foreign-currency revenues. Second, UBS argues that domestic corporate hedging remains inadequate. SAFE reported a 30% corporate FX hedging ratio in 2025, despite record FX-market turnover of US$42.6trn. UBS contrasts this with cited evidence that about 80% of listed Japanese manufacturers used market-based FX hedging instruments in a 2021 RIETI survey, while ISDA found derivatives use among 89% of S&P 500 constituents and 90% of Nikkei 225 constituents in its 2025 analysis. The report sees the lower domestic hedging ratio and less-developed risk-management systems as increasing companies’ exposure to exchange-rate volatility. UBS distinguishes accounting effects from intrinsic business value. FX gains and losses arise when foreign-currency transactions, monetary assets and liabilities are settled or translated; exchange differences on monetary items are generally recognized in current-period profit and loss. The report argues that these movements do not in themselves materially change the intrinsic value of a company’s core operations. Consequently, analysts should look beyond current-period net profit and examine whether exchange-rate movements affect product competitiveness, gross margins, overseas market share and export pricing. This perspective is supported by the small long-run historical impact of FX gains and losses, averaging negative 0.4% of aggregate net profit from 2015 to 2025. From a market-strategy perspective, however, UBS says the H126 scale can weigh on near-term sentiment. The longer-term risk rises if CNY appreciation continues while overseas revenue exposure expands. UBS’s APAC FX research estimates that the CNY effective exchange rate is undervalued by about 8% based on China’s share of global exports, with long-term CNY-USD fair value estimated at 6.15. If the CNY keeps appreciating in coming years and companies continue to increase their overseas revenue mix, FX losses could become a persistent earnings headwind. UBS therefore highlights stronger FX hedging, greater use of financial instruments, technology and brand upgrading, localized overseas production and supply-chain resilience as ways companies expanding abroad could reduce the operational impact of currency moves.

Analysis framework

UBS combines aggregate A-share earnings data, sector comparisons of FX losses relative to net profit, overseas-revenue and gross-margin data, exchange-rate movements, and cross-country hedging comparisons. It then separates the accounting impact of currency translation on reported earnings from potential effects on operating fundamentals, competitiveness and long-term value.

Methodology notes

• Corporate Fundamentals and FinanceEarnings Quality Analysis

  Separating FX translation effects on reported net profit from underlying operating performance.

  UBS argues that investors should not judge companies solely on current FX-driven profit changes, but should assess whether currency moves alter margins, competitiveness, market share and pricing.

• Other

  Foreign-currency transaction and translation accounting.

  The report explains that exchange-rate changes affecting foreign-currency transactions, assets, liabilities and overseas operations can flow through current profit and loss or shareholders’ equity depending on the accounting treatment.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Non-financial A-share companies

  Primary market group affected by CNY-driven FX translation losses.

  Strengths

  Overseas revenue and margins have risen, while exports remained robust.

  Weaknesses

  Limited FX hedging leaves reported earnings more exposed to CNY appreciation.

  Comparison

  Chinese corporate hedging ratio was 30% in 2025, versus cited derivatives use of about 80% among listed Japanese manufacturers.

  Risks

  Persistent CNY appreciation alongside a rising overseas revenue mix could create a sustained earnings headwind.

• Automobile sector

  Sector with the largest cited H126 FX-loss burden.

  Strengths

  Automobiles and related products supported China’s export growth in 8M26.

  Weaknesses

  FX losses equaled 22.5% of H126 net profit.

  Comparison

  Its FX-loss burden exceeded the 14% threshold also cited for several export-exposed sectors.

  Risks

  Continued CNY appreciation could keep pressuring reported earnings where foreign revenues are translated into yuan.

Key data

• H126 FX losses of non-financial A-sharesRmb107bnEquivalent to negative 5.5% of aggregate net profit and the highest absolute amount since 2015.
• Historical average FX-loss impact-0.4%Average FX gains/losses as a share of aggregate net profit during 2015-25.
• CNY appreciation against USDc9.5%Since the 9 April 2025 cyclical low.
• China USD-denominated export growth19% YoYGrowth in 8M26 despite CNY appreciation.
• Overseas revenue share of non-financial A-shares18.7%2025 level, versus 9.5% in 2010; UBS expects about 25% by 2030E.
• Overseas versus domestic gross-margin premium2.8ppt2025 premium, widening from 2.2ppt in 2024.
• Corporate FX hedging ratio in China30%SAFE-reported 2025 ratio.
• Automobile-sector FX losses-22.5% of net profitH126, the largest sector burden cited by UBS.

Impact & implications

UBS views the current FX-loss burden as important for reported earnings and near-term equity-market sentiment, especially in sectors with high foreign revenue exposure. It does not regard FX losses alone as evidence of weaker intrinsic business value; the key issue is whether sustained currency appreciation begins to impair competitiveness, margins, market share or export pricing. The report expects companies expanding overseas to place greater emphasis on hedging and localized operations.

Risks

• UBS identifies a hard landing in China’s property market as a risk to Chinese equities.
• A capital exodus associated with currency depreciation could hurt Chinese equities.
• Slow structural reform progress could create market risk.
• Excessive stimulus could hinder the transition from an investment-driven to a consumption-driven economy and increase government and state-owned-enterprise debt.

What to watch

• Whether CNY appreciation persists against major trading-partner currencies.
• Whether expanding overseas revenue exposure causes FX losses to become a persistent drag on corporate earnings.
• Whether currency moves affect product competitiveness, gross margins, overseas market share or export pricing.
• Whether A-share companies, particularly overseas expanders, increase their use of FX hedging.