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Burberry shares hit by Chinese devaluation

Luxury British brands Burberry and Mulberry were among those hard hit by China’s unexpected devaluation of the yuan on Tuesday and again this morning.

The People’s Bank of China has slashed the value of the currency by around 4% in the last two days, taking it to a four-year low against the US dollar.  

The bank insisted it was a “one-time correction”, but many fear China is panicking about the sluggish growth of its economy and this may pre-empt a series of moves to improve its international competitiveness.

The yuan is also influenced by the value of the dollar, which has been strengthening ahead of an expected hike in interest rates this year.

China accounts for around a third of Burberry’s revenue. Following the shock devaluation, Burberry, Mulberry and European brand house LVMH all saw their shares fall. Other more mainstream British brands and retailers trading in China are also expected to be hit.

However, the CBI’s Rain Newton-Smith told City AM that “although a depreciation in the renmindbi (the name for China’s currency, of which the yuan is a unit) against sterling will put pressure on UK exports to China in the short-term, the effect on Chinese growth should be beneficial to UK exports in the longer term”.

@KirstyMcGregor

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