Since the Spring Festival, the RMB exchange rate has continued to appreciate. How should major asset classes be allocated?

During the Spring Festival holiday, the RMB exchange rate experienced a strong appreciation trend, with offshore RMB soaring through the 6.89 level intraday, touching a low of 6.8813, hitting a new three-year high.

In fact, since February, the RMB against the US dollar has been steadily rising from around 6.98, with a cumulative appreciation of nearly 1.3%. Both onshore and offshore rates have stabilized above 6.9. The mainstream view attributes this round of appreciation mainly to the weakening of the US dollar index, rising expectations of Federal Reserve rate cuts, steady recovery of the domestic economy, and sustained high trade surplus.

Regarding the future trend of the RMB, brokerages have expressed optimistic outlooks. Huatai Securities analyzed from a macro perspective that the RMB is expected to continue its appreciation trend. Galaxy Securities believes that the RMB will break away from the short cycle of 3-4 years and enter a longer-term appreciation cycle, which is now at the starting point of this extended upward trend. Western Securities also stated that, in the medium to long term, China’s strong industrial strength and export competitiveness are the fundamental drivers of RMB appreciation.

Exchange rate fluctuations will profoundly impact asset allocation logic. Overall, the long-term appreciation trend of the RMB will create investment opportunities. Brokerages suggest maintaining a firm stance on RMB assets such as A-shares, H-shares, and government bonds. Equity markets can be positioned around fundamentals, profit margin improvements, and northbound capital preferences. Commodities like copper and other industrial metals present structural opportunities. Under the RMB appreciation trend, grasping the beneficiary logic of various sectors is key to asset allocation.

A-shares and H-shares to benefit together

The appreciation of the RMB has the most direct and significant positive impact on the equity markets. The core logic is that a stronger exchange rate will greatly enhance the attractiveness of RMB assets, reduce stock risk premiums, and attract continuous inflows of overseas capital.

Many brokerages believe that during the RMB appreciation cycle, the overall equity market will perform well. Among them, Hong Kong stocks, with their stronger foreign capital participation, are the biggest beneficiaries. A-shares show structural differentiation, with growth-oriented sectors and those favored by foreign investors performing particularly well.

On one hand, A-shares will benefit from multi-dimensional transmission, with growth styles leading. Huatai Securities summarized four main transmission channels for RMB appreciation affecting A-shares: relative fundamentals, debt effects, cost effects, and allocation effects.

• Fundamentals: RMB appreciation often coincides with an upward cycle in China’s economic fundamentals. Leading industries such as real estate, advanced manufacturing, and high-beta sectors like non-bank financials will benefit first as market risk appetite improves.

• Debt effects: Industries with high dollar-denominated debt, such as motorcycles, auto parts, engineering machinery, and photovoltaic equipment, will see debt relief and exchange gains, directly boosting current profits.

• Cost effects: Industries highly dependent on external inputs, like electronic chemicals, seed industry, and steel raw materials, will benefit from RMB’s increased purchasing power, lowering costs of imported raw materials and potentially significantly improving gross margins.

• Allocation effects: Increased overseas interest in Chinese equities and inflows of northbound funds will serve as important sector allocation indicators.

CITIC Securities identified three investment clues from market trading and profit improvement perspectives: first, industries with “muscle memory” such as aerospace, gas, and paper, which tend to show strong stock price elasticity when RMB appreciates or crosses key levels; second, industries with high import dependence and low export reliance like steel, non-ferrous metals, and petrochemical refining, where cost savings will boost margins, benefiting sectors like agriculture, shipping, and engineering machinery; third, sectors benefiting from loose monetary policy expectations, such as duty-free shops, property developers, and non-bank financials like securities and insurance, which may see policy and exchange rate double catalysts.

CITIC Minsheng Research shows that during RMB appreciation cycles, the entire A-share index generally trends upward, with most sectors experiencing positive impacts, notably steel, real estate, light industry, and transportation. Growth styles outperform value styles overall, with no clear dominance between large-cap and small-cap stocks.

From a capital flow perspective, northbound funds are a key indicator. Since December 2025, daily northbound trading volume has significantly increased. In Q4 2025, net inflows into sectors like non-ferrous metals, electrical equipment, and electronics led, with secondary industries such as batteries, semiconductors, and photovoltaic equipment seeing continuous foreign inflows over three quarters. These sectors are core targets for capital deployment during the appreciation trend.

On the other hand, Hong Kong stocks will benefit from foreign capital inflows, with the technology sector potentially catching up. Galaxy Securities notes that, from onshore and offshore stock perspectives, Hong Kong stocks benefit more from RMB appreciation. Compared to A-shares, Hong Kong markets have higher foreign participation, and the net inflow effect from RMB appreciation is more pronounced. Currently, Hong Kong stocks are at historically low valuations, and with rising RMB asset attractiveness, valuation recovery potential is greater.

Great Wall Securities believes that although recent southbound capital inflows into Hong Kong stocks have weakened compared to Q1 and Q3 2025, there remains room for further foreign allocation, especially in the more cyclical and certain technology sectors, which have clear rebound opportunities.

However, sector performance within Hong Kong stocks will vary significantly. Huatai Securities warns that sectors favored by foreign capital, such as white goods, batteries, engineering machinery, power grid equipment, and beverages/dairy, will benefit notably from inflows. Conversely, sectors favored by southbound funds, like coal, oil & petrochemicals, and pharmaceuticals, may face capital outflow pressures.

Bond market faces dual forces, with yields fluctuating within a range

The impact of RMB appreciation on bond yields shows a clear duality: downward pressure from monetary easing and upward pressure from capital inflows. This tug-of-war makes it difficult for the bond market to establish a clear trend.

Galaxy Securities points out that RMB appreciation will create room for monetary policy easing, pushing short-term yields lower and exerting downward pressure on long-term yields. Conversely, RMB appreciation often reduces stock risk premiums, attracting international capital into Chinese equities and boosting risk appetite, which can temporarily pressure bonds.

Under these opposing forces, Galaxy Securities believes this appreciation cycle does not indicate a strong economic recovery. Limited inflationary momentum and potential headwinds for credit expansion suggest that the bond market will not experience a major annual correction. They forecast the 10-year government bond yield in 2026 to fluctuate narrowly between 1.7% and 2.1%, with limited overall volatility.

Commodity markets show differentiation, with industrial metals shining

The commodity market exhibits clear differentiation. Different commodities are showing divergent trends, with industrial metals standing out as a bright spot.

Galaxy Securities notes that this RMB appreciation is driven by capital flows under a weak US dollar environment, not by domestic demand recovery. Therefore, commodities are unlikely to form sustained trends. Amid AI-related narratives, different commodities will diverge, with Shanghai copper showing more definite upside potential. Western Securities echoes this view, recommending focus on industrial metals like copper, aluminum, and nickel.

Other commodities lack clear trend opportunities for now, pending domestic demand recovery validation. Gold, as a traditional safe-haven asset, is included in many brokerages’ strategic allocations. Western Securities suggests maintaining strategic positions in gold but advises caution on short-term speculative trades.

Identify high-probability directions and seize structural opportunities under mild appreciation

Guohai Securities reviewed eight RMB appreciation cycles since the 2015 “811 FX reform” and found that, based on the strength of domestic demand recovery, RMB appreciation can be categorized into “strong appreciation” and “weak appreciation,” with the latter dominating—six out of eight cycles were weak appreciation.

Given the current market environment, Guohai Securities believes the probability of this cycle being a mild appreciation is high. The main reasons are the slow recovery of real estate and consumption sectors and the Fed’s gradual shift toward a neutral stance, which will somewhat restrain RMB appreciation.

In a weak appreciation environment, asset allocation logic becomes clearer. Growth styles with “high success rate + high elasticity” are the main focus. Industry-wise, communications and electronics have a “high success rate + high elasticity,” with an 83% chance of outperforming the entire A-share market; computer, electrical equipment, and household appliances also show “second-high success rate + high elasticity,” with a 67% chance of outperforming.

Based on multiple brokerages’ views, during this RMB appreciation trend, four high-probability directions are recommended:

1. Focus on technology growth sectors, especially computers, electronics, communications, and electrical equipment. These are in high prosperity phases, with electrical equipment benefiting from ongoing recovery of internal competition, offering high cost-performance.

2. Invest in sectors favored by foreign capital, such as non-ferrous metals, batteries, engineering machinery, and white goods, which will benefit from sustained foreign inflows, boosting valuations and performance.

3. Pay attention to cost-improvement sectors like aerospace, paper, steel, and non-ferrous metals, which have high external debt or reliance on imports, benefiting from RMB appreciation-driven cost reductions and exchange gains.

4. Hold core RMB assets, including high-quality A-shares, government bonds, and other low-risk assets, which are the main channels for cross-border capital inflows and have long-term allocation value.