FX losses and CNY appreciation in non-financial A-shares: Rising CNY and limited hedging made FX losses a material near-term drag on A-share earnings

Overview

This China equity strategy report examines whether unusually large FX losses at non-financial A-share companies should concern investors. UBS attributes the losses to CNY appreciation, expanding overseas revenue exposure and inadequate hedging, while distinguishing the near-term earnings and sentiment effect from long-run core-business value.

Core views

UBS reports that non-financial A-share companies incurred Rmb107bn of FX losses in H126, equal to 5.5% of aggregate net profit. This was the highest absolute loss since 2015 and a much larger earnings drag than the 2015-25 average of -0.4%. The report links the outcome to the CNY's continued appreciation: since its cyclical low on 9 April 2025, the CNY had appreciated about 9.5% against the USD, and by 21 September 2026 USD/CNY briefly fell below 6.7. The CNY had also appreciated 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 transmission mechanism is concentrated among exporters whose costs are mainly denominated in CNY but whose revenue is earned in foreign currencies. A stronger reporting currency reduces the CNY value of foreign-currency sales and can compress margins or generate FX losses when receivables, payables, deposits, borrowings and overseas operations are settled or translated. This occurred despite resilient aggregate exports: USD-denominated Chinese exports rose 19% year on year in 8M26, supported by technology products, automobiles and related products, and electrical equipment. The report identifies rising overseas exposure as the first reason that currency movements now matter more for earnings. Overseas revenue for non-financial A-shares increased from 9.5% in 2010 to 18.7% in 2025, while overseas gross profit margin exceeded domestic gross profit margin by 2.8 percentage points in 2025, up from a 2.2-point gap in 2024. UBS expects overseas revenue to account for about 25% of total A-share revenue by 2030E. Higher-margin overseas business gives companies an incentive to expand abroad, but it also increases their exposure to a stronger CNY. The sector evidence supports this relationship: industries with high overseas revenue contributions substantially overlap with those most affected by FX losses. In H126, FX losses exceeded 14% of net profit in automobiles, building materials, light manufacturing, electrical equipment, machinery, household appliances and conglomerates; automobiles reached 22.5%. The second driver is limited corporate risk management. SAFE data show Chinese corporates' FX hedging ratio reached 30% in 2025, despite record FX-market turnover of US$42.6trn. UBS contrasts this with a 2021 RIETI survey in which about 80% of listed Japanese manufacturers used market-based hedging instruments, and with ISDA's 2025 analysis showing derivatives use by 89% of S&P 500 constituents and 90% of Nikkei 225 constituents. The report argues that lower hedging adoption leaves A-share companies more exposed when exchange rates move sharply. UBS does not treat current-period FX gains or losses as a material change in the intrinsic value of a company's core business. It notes that industry analysts often exclude FX effects from valuation models and should assess whether currency movements instead affect product competitiveness, gross margins, overseas market share and export pricing. The historical average FX impact of -0.4% of aggregate net profit from 2015 to 2025 supports the view that the long-run aggregate earnings effect has generally been limited. From a market-strategy perspective, however, a large FX-loss-to-profit ratio can pressure near-term investor sentiment. UBS highlights that the CNY's effective exchange rate is estimated to be undervalued by about 8%, with its APAC FX research team estimating long-term fair value for USD/CNY at 6.15. If the CNY continues to appreciate while overseas revenue mixes rise, FX losses could become a more persistent earnings headwind. The report therefore argues that overseas-expanding A-share companies should improve FX hedging, while also strengthening technology, brands, product differentiation, pricing power, overseas localization and supply-chain resilience.

Analysis framework

UBS first quantifies aggregate and sector-level FX losses relative to net profit, then connects those results to CNY movements, overseas revenue exposure and overseas-versus-domestic margins. It compares Chinese corporate hedging adoption with international evidence and separates accounting-related FX effects from underlying operating competitiveness and long-term valuation considerations.

Methodology notes

• Other

  FX exposure and foreign-currency translation analysis

  The report measures FX gains and losses against net profit and explains how exchange-rate movements affect foreign-currency transactions, assets, liabilities and overseas financial-statement translation.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Overseas revenue and cost-currency exposure

  UBS assesses how foreign-currency revenue combined with largely CNY-denominated costs transmits CNY appreciation into lower reported revenue, margins and earnings for export-oriented sectors.

Asset mapping & comparison

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

• Non-financial A-shares

  Primary market-wide subject exposed to CNY appreciation through expanding overseas revenue

  Strengths

  Overseas revenue exposure has risen and overseas business margins have generally exceeded domestic margins.

  Weaknesses

  FX losses reached Rmb107bn, or 5.5% of H126 aggregate net profit.

  Comparison

  The 2025 overseas revenue share of 18.7% was nearly double the 9.5% recorded in 2010.

  Risks

  Persistent CNY appreciation alongside higher overseas revenue exposure could create a sustained earnings drag.

• Automobile sector

  Export-exposed sector with the largest highlighted H126 FX-loss burden

  Strengths

  China's exports were supported by automobiles and related products.

  Weaknesses

  FX losses were 22.5% of H126 net profit.

  Comparison

  The sector's FX-loss burden exceeded the 14% threshold highlighted for several export-exposed industries.

  Risks

  Further CNY appreciation could continue to pressure reported earnings.

Key data

• Non-financial A-share FX lossesRmb107bnH126 aggregate loss; highest since 2015
• FX losses as share of net profit-5.5%H126 versus a 2015-25 average of -0.4%
• CNY appreciation against USDc9.5%From the 9 April 2025 cyclical low
• China USD-denominated exports+19% YoY8M26
• Overseas revenue share18.7%Non-financial A-shares in 2025; UBS expects c25% by 2030E
• Overseas versus domestic GPM+2.8ppt2025 gap, widening from +2.2ppt in 2024
• Chinese corporate FX hedging ratio30%2025 SAFE data
• Automobile-sector FX losses-22.5% of net profitH126

Impact & implications

UBS considers FX losses a meaningful near-term earnings and sentiment issue for export-exposed A-share sectors, especially where overseas revenue is high and hedging is limited. Over the longer term, it argues that investors should focus on whether exchange rates alter underlying competitiveness, margins, pricing and market share rather than on accounting FX effects alone.

Risks

• A hard landing in China's property market could pose a risk to China equities.
• A capital exodus associated with currency depreciation could pressure the market.
• Slow structural reform progress could be a market risk.
• Government policies that do not adequately address these risks could shock the market.
• Excessive stimulus could impede the transition toward a consumption-driven economy and increase government and state-owned-enterprise debt.
• Continued CNY appreciation alongside rising overseas revenue exposure could make FX losses a persistent corporate earnings headwind.

What to watch

• Whether CNY appreciation persists against major trading-partner currencies.
• Whether overseas revenue exposure continues toward UBS's estimate of about 25% of A-share revenue by 2030E.
• Whether FX losses remain a significant share of aggregate corporate earnings.
• Whether exporters improve FX hedging and risk-management practices.
• Whether currency moves affect product competitiveness, gross margins, export pricing and overseas market share.