US$ rise hitting firms more than yuan slide

Still, China factor expected to affect earnings of Singapore firms with mainland presence

A man walking past a foreign exchange in Hong Kong.
A man walking past a foreign exchange in Hong Kong.PHOTO: EPA

Singapore firms trading with China say they are being hit harder by the strengthening greenback than the suddenly weaker yuan. This is because many firms here pay their China suppliers using US dollars.

However, the double whammy of a sliding yuan and slowing growth in China is still expected to hit the earnings of Singapore firms with a presence on the mainland.

China stunned the world's financial markets yesterday by devaluing the yuan for a second straight day, triggering fears that the world's second-largest economy is in worse shape than believed.

Mr Ron Ang, co-founder of Absolute Liquor, said the firm has not gained from the weaker yuan as it pays China suppliers in US dollars.

It imports beer and holds the sole distributorship for Chinese beer brands Pearl River and Cheerday. The stronger US dollar means its China imports are more expensive.

  • MAS ready to curb Singdollar volatility

  • The Monetary Authority of Singapore (MAS) stands ready to curb excessive volatility in the Singdollar after the devaluation of the yuan. The central bank said yesterday the Singapore dollar has stayed in its policy band despite higher foreign exchange market volatility.

    The current policy of modest, gradual Singdollar appreciation against a basket of currencies "remains appropriate from the perspective of overall macro economic conditions", the MAS added.

    The yuan has fallen about 0.8 per cent against the Singdollar since Tuesday's first devaluation. The weaker yuan could dampen China's demand for imports from here and slow a rebound in tourist arrivals from China, the Ministry of Trade and Industry said.

    But as the depreciation has been small so far, the impact on exports and tourist arrivals is likely to be contained, a spokesman said.

    Chia Yan Min

One US dollar could buy about S$1.41 yesterday, from about S$1.37 at the start of this year.

The strengthening greenback has led to higher costs and the firm may have to increase prices by the year end if it keeps appreciating against the Singdollar, Mr Ang said.

"Beer companies which import from overseas and deal in US dollars are being affected. We haven't moved prices up yet, but once a few brands start doing so, everyone will."

Interior furnishings firm Goodrich Global's chief executive Chan Chong Beng said it sells to China in yuan, but imports goods for sale in China using US dollars.

"Obviously the weaker yuan (and stronger dollar) don't help us because our costs become higher and our revenue is also worth less," Mr Chan said, adding that China makes up about 40 per cent of the company's revenue.

Even if trades with China were in yuan instead of US dollars, Aldon Technologies group managing director Allen Ang said the firm would not be worried about competing with Chinese exporters.

"To be frank, (the Chinese) are only good in their own domestic market. They don't have the capability to export what we are exporting," said Mr Ang.

The firm refurbishes process kits and parts for flat panel and semiconductor manufacturers.

Mr Ang said his Chinese customers are "begging" him to trade in yuan to spare them losses. "If they use the US dollar, their risk is higher than ours."

DBS Group Research analyst Derek Tan said that, even before the recent moves to devalue the yuan, the slowing Chinese economy had already hit listed Singapore firms in sectors such as retail and residential property.

The weaker Chinese currency will have the greatest impact on the revenues of companies which derive a larger portion of income from China, he noted.

Bosses say they remain optimistic about China's long-term prospects but are bracing themselves for further falls in the currency.

Mr Chris Leong, managing director of Leung Kai Fook (Guangdong) Medical, said: "We do not like to see the yuan fall to the extent that we need to increase our selling prices to sustain a reasonable profit margin, and we do not expect to see it happening in the near future." It has a production plant in China, with most costs in yuan.

Goodrich's Mr Chan said: "Eventually, the market will have to settle down... China will continue to be very important for us."

A version of this article appeared in the print edition of The Straits Times on August 13, 2015, with the headline 'US$ rise hitting firms more than yuan slide'. Print Edition | Subscribe