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Yuan's devaluation may benefit RMG manufacturers

The devaluation of Chinese Yuan has had the world market in a tizzy and raised concerns about further economic meltdown in the country. For some retailers, though, the lower-valued currency will change things it won’t affect companies, even those in the same sector. The Wall Street Journal, in an article comparing the currency slide’s likely impact on Spain’s Inditex and Sweden’s H&M stated that though both companies had similar sales exposure to China and their presence had grown there in recent years, the impact to each would vary significantly.

Also, according WSJ, so far, the decline in Yuan need not give rise to panic however, if this continues, it could be alarming. Retailers’ products will suddenly be more expensive in the local currency and the lower value will mean more expensive travel, which may mean sales to Chinese tourists, if the retailers don’t cut down the prices. H&M sources nearly 40 per cent of its products from China according to the Swiss global financial services firm UBS. While that number is a lower 20 per cent for Zara owner, Inditex.

In recent years, as the Yuan was allowed to rise against the dollar, H&M’s cost of goods went up at a faster pace compared to its rival. Its gross margin has been steadily falling in the past five years, while that of Inditex has remained steady, helping to boost the latter’s stock, the Journal mentioned. Inditex’s stocks are up 26 per cent this year, compared to just a 6 per cent rise for H&M, but the Journal said that this could reverse.

 
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