China worries me if devaluation continues: Expert

China devalues, markets pull back
China the real story: Pro
US dollar only currency play in the game?

China's surprise currency devaluation sent markets reeling Tuesday, but investors should not worry about a ripple effect just yet, one market watcher said.

The real "litmus test" for effects on the global economy will come if the currency decline steepens in the coming weeks, said Jonathan Brodsky, managing director and portfolio manager at Advisory Research.

"That's sending a signal that the government is moving back toward its more export-oriented perspective. And then you have some additional concerns," he contended Tuesday on CNBC's "Power Lunch."

Pedestrians stand in front of an electronic board displaying an advertisement for Chinese stocks outside a securities firm in Tokyo, Japan, on Tuesday, Aug. 11, 2015.
Kiyoshi Ota | Bloomberg | Getty Images

U.S. stocks tumbled on Tuesday after the People's Bank of China unexpectedly depreciated the yuan by nearly 2 percent overnight. The move comes amid a slowdown in the world's second-largest economy and an 8 percent decline in exports in July.

Read MoreCurrency war? How China devaluation may impact the Fed

Among other factors, investors feared additional headwinds created by the U.S. dollar gaining more strength against the yuan. The Dow Jones industrial average plunged by more than 200 points, setting up for its eighth loss in nine days.

While China has certainly shaped markets more than other possible contagion stories like Greece or Puerto Rico, the "huge panic" on Tuesday did not seem warranted, said Ben Willis of Princeton Securities.

"China is the real story here, but it's a huge overreaction," he contended on "Power Lunch."

Other market watchers also noted the limited exposure many S&P 500 companies have to China.

Read MoreDon't be distracted by China: Goldman's Kostin

Still, the currency changes—combined with deflationary pressures from sliding commodities prices—could change the Federal Reserve's thinking as it decides when to raise the federal funds rate for the first time in nine years, said CNBC contributor Ron Insana.

"This China story just exacerbates any deflationary tendency," he said on "Power Lunch."

Insana added that he sees a less than 50 percent chance of the U.S. central bank increasing interest rates in September.