Chinese Exporters Cut Currency Hedges in Sign of Yuan Pessimism

(Bloomberg) -- The plunge in the yuan last month spurred some Chinese exporters to reduce their currency hedges amid bets weakness would continue, traders familiar with the matter said.

Companies lowered their hedging ratios last month, becoming reluctant to sell dollar forward contracts, said the five traders, asking not to be named as they’re not authorized to talk to media. The traders cited flows they handled on behalf of corporate clients.

While a weaker yuan translates into higher profits for Chinese exporters, currency hedges from some companies limited the benefit to earnings last month. The yuan weakened past 7 for the first time in more than a decade as trade tensions worsened to cap a record 4% loss for the month. It’s risen 0.7% in September.

Chinese companies sold more dollars using forwards than they bought for 11 months through July, according to State Administration of Foreign Exchange of China data. Figures for August are due Sept. 19.

To contact Bloomberg News staff for this story: Ran Li in Beijing at rli279@bloomberg.net;Livia Yap in Shanghai at lyap14@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Magdalene Fung, David Watkins

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With assistance from Bloomberg