For those Chinese firms who have positioned for a strengthening currency, a recent weakening in the yuan could spell significant earnings hit, analysts at Nomura say.
The renminbi, also known as the yuan has depreciated around 2.7 percent against the U.S. dollar since the start of February, catching many investors off guard as yuan appreciation was widely seen as a one-way bet. It was trading at 6.2164 per dollar on Tuesday.
Many analysts believe the decline may be a temporary blip on a longer-term appreciation path, but there are some concerns that the weakness may become more permanent.
The yuan's steady appreciation since it was unpegged from the dollar in 2005 led many companies to enter into carry trades, buying yuan assets with funds borrowed in other currencies in the expectation of foreign exchange gains.
"It appears that nearly everyone is on board with the renminbi carry trade," Nomura said in a note Friday, citing conversations with investors, manufacturers and banks.
But the recent decline in the yuan may impose losses on companies with outstanding positions and may pose liquidity difficulties in some cases, the bank said, adding that the investors may be overlooking the risks to companies' bottom lines.
The yuan's recent decline "has not led to changes in the medium-term assumptions that impact analysts' earnings estimates and DCF (discounted cash flow)-based valuations," Nomura said.
"If there is a shift in consensus toward a weaker renminbi, then both earnings- and DCF-derived valuations in U.S. dollar or Hong Kong dollar terms will be lower."
Longer-term yuan weakness could significantly hit the earnings of some companies getting a large portion of their profits from foreign exchange gains, it noted.
Companies such as Shanghai Petrochemical, one of China's largest petrochemical companies, flag carrier Air China, Wuhan Iron and the country's largest juice maker by sales China Huiyuan, posted net foreign-exchange gains of 20 percent or more of net profit between the second half of 2012 through the first half of 2013, Nomura noted.
It said Wuhan Iron, China's fourth largest steel producer, had a foreign exchange gain of around 29 percent of its net profit for the period running from the second half of 2012 through the first half of 2013, benefitting from the effect of the yuan's rise on its U.S. dollar denominated debt.
"If the renminbi depreciates, such favorable impact would be reversed," Nomura said.
Nomura noted the exact reversal for these companies may not be one-for-one due to factors including accounting treatment, hedging and exposure to foreign-exchange revenues and costs that could either aggravate or offset the impact.
Other analysts were not convinced a depreciating yuan would seriously affect corporate earnings.
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"Foreign exchange gains are there, but they aren't a big part of the overall earnings picture," said Erwin Sanft, head of China and Hong Kong equity research at Standard Chartered.
"Companies would have to have tiny earnings to have a high percentage of foreign-exchange gains."
He believes the larger issue would be that companies in some sectors, such as property and utilities, have been borrowing in foreign currencies because financing costs were much cheaper.
This becomes an issue at earnings reporting time, he said. "They may need to book losses on foreign debt."
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter