What's really worrisome about China: Strategist

The first week of trading in 2016 has brought some bad news for the markets. While a declining stock market in China may worry investors, Sean Darby, Jefferies' global head of equity strategy says there's a bigger concern on hand: "The currency is the one to watch at the moment."

His comments came after China halted trading twice this week, fueling a sell-off on the global markets.

"The stock market has been relatively insulated to international investors, so I still feel it's a little bit out of the sort of whole conventional market," he said, speaking to CNBC's "Power Lunch."

"The yuan is entering the financial system at the moment, and I think that's where the major distortion is occurring in global financial markets."

Darby believes that if the Yuan further devalues there will be a large ripple effect.

"They've had a large amount of capital outflows, the yuan is weakening — which is making the dollar debt burden even worse — and also it's drawing down on their foreign exchange reserves," he said. In this "catch-22" situation, he says, China needs to let the yuan fall as fast as possible to clear the currency.

For U.S. investors who fear the impact from China's market volatility, Darby maintains that there's not much reason for panic.

"Your biggest export to China is agricultural products … it's not really that materially big,"" he noted. "More of it is in terms of the relationship China has with the rest of the world in global trade."