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FiREapps believe that, “China hasn’t learned how to communicate with the global markets. Back in mid-August, the Yuan devaluation surprised most corporations. The move pushed the CNY into one of the five most frequently mentioned currencies among European companies and the CNY narrowly missed making the same list among North American companies. Given the sudden spikes this quarter, it is clear there’s much more to come here.”

Q 3 Report summary

The main findings from the Q3 2015 FiREapps report, for copy see here, on the impact of currency flows and value changes were:

• One of The Top 5 Largest Impacts Seen to Date: $24 Billion - A total of 399 companies – 353 in North America and 46 in Europe– reported negative currency impacts in 2015 Q3. Of the companies actually quantifying the impact, the total quantified negative currency impact in 2015 Q3 was $24.02 billion – $19.29 billion in North America and $4.73 billion in Europe.
• Compared to 2014 Q3, 2015 Q3 Impact Was Over 3x Larger: - The $24.02 billion in negative impact reported this quarter is over 3x the $8.0 billion reported in Q3 2014; and up 23% from Q2 2015. Overall, the number of quantified negative currency impacts (North America and Europe) were above Q2 2015 (up by 4%). Looking only at North America, the number of corporates reporting (but not quantifying) was more than double Q2 and also marks a record number of reported headwinds. Additionally, this is the first time more than 40% of the North American corporates surveyed reported a currency headwind.
• North American corporates negative impact, the average per company impact was $169 million and for European corporates it was $473 million: This is the 2nd highest on record among North American corporates (and nearly 5x the number reported in Q3 2014); and is the highest average per company impact, by far, since we began tracking European corporates. At the height of the euro crisis, when North America-based multinationals were reporting headwinds to the tune of $20.27 billion and $22.73 billion (in Q2 2012 and Q3 2012, respectively) people thought the world had seen the worst of currency volatility. It is true that the euro crisis was one of unprecedented proportion in a world more financially interconnected than ever. Yet, less than three years later, corporates are seeing more significant sustained negative impacts than at the height of the euro crisis. Q3 2015 was the fourth consecutive quarter where negative impact was magnitudes above the running average of previous years; comparatively, during the euro crisis negative 3 impacts spiked for two quarters, returning quickly to prior levels.

The global impact

FiREapps also believe that, “China is an unprecedented situation. While companies have lost billions due to currency impacts in the past few years, companies have never seen the second largest world economy intentionally devalue its currency suddenly like this; and in doing so, join the race to the bottom in order to grow their own economy.”

Not only this, they feel that, “The impacts will be felt globally, but in particular by multinational corporations with a presence in Latin America where (in many countries, such as Brazil) China is the leading buyer of exports; Asia (see India) and the middle east. The data in the report indicates how deeply connected these devaluations are to the global marketplace and especially US and European companies.”

Indeed Wolfgang Koester, CEO at FiREapps, summed up the serious nature of the current situation, saying: "Now, more than ever before — it is imperative that Multinational Corporations have visibility into their entire portfolio of currencies and the associated risks. In this environment, blindspots are more likely than not, to result in material impacts to earnings.”

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CTMfile take: Wolfgang is not being as pessimistic as RBS economics doomongers - see, however, he is saying that MNCs really need to understand their entire FX position and the associated risks. This can only be done by analysing the FX exposures at the ERP level and where they are, until this is done corporates don’t understand their FX exposure risks.