Europe's luxury goods firms feel the pain as China 'panics' and slashes value of yuan

Luxury goods firms and Europe’s biggest car manufacturers were among the casualties as China joined the global currency wars in dramatic style by slashing the value of the yuan.

In a move signalling rising panic in Beijing over the health of the world’s second biggest economy, China’s central bank cut the value of the currency by 1.9% - the biggest one-day move in a decade - catching markets completely off-guard.

The state-controlled yuan is traded in a narrow band around a value set by China’s central bank. But moving the marker lower instantly makes Chinese exports cheaper, while making a host of multi-national giants selling goods to Chinese customers less competitive.

The impact was immediately felt by Burberry, whose Chinese customers account for around a third of its overall revenues. The shares slipped 31.5p to 1575.5p, leaving the firm the biggest faller in the FTSE 100. Mulberry was also on the back foot, down 17p or 2% at 882.5p, while across Europe other leading players including LVMH and Louis Vuitton were also hit.

The shockwaves were also felt in Germany, which sends more than 6% of its overall exports to China including nearly $30 billion worth of vehicles last year. Investors dumped shares in BMW, Volkswagen and Porsche, London’s legion of listed miners also suffered as the fall in the yuan made dollar-denominated commodities more expensive to Chinese buyers.

China has also been cutting interest rates since last November in a bid to shore up sluggish growth and was forced to stem a stock market rout last month. CMC Markets analyst Michael Hewson said Beijing’s move “had the stench of panic” following the latest dire weekend figures showing an 8.3% plunge in exports in the year to July.

He said: “This is a competitive devaluation. Whether it will work is another thing entirely. Ultimately it is the latest shot in the currency wars.”

Leading central banks including the European Central Bank have embarked on money-printing this year while the Bank of Japan has also stepped up stimulus, weakening their currency.

The central bank took action because the yuan is heavily influenced by the US dollar, which has been strengthening amid rising expectations that the US Federal Reserve will raise interest rates this year. China also pledged to give market forces a stronger role in setting the value of the yuan, although the devaluation is likely to raise protests from US manufacturers.