Spring Festival: Renminbi appreciates strongly to the 6.89 level, providing positive support for the stock, bond, and foreign exchange markets. How should major asset classes be allocated?

During the Spring Festival period, the RMB exchange rate experienced a strong upward trend. On February 21, the RMB exchange rate held steady within the 6.89 range; on February 19, offshore RMB touched a low of 6.88, while onshore RMB rose simultaneously to 6.885, both hitting their highest points since April 2023. Since the beginning of February, the RMB has appreciated by nearly 1.3%.

Although the domestic stock, bond, and foreign exchange markets were closed during the Spring Festival holiday, the significant rise in the RMB exchange rate was still a positive signal.

“The sharp increase in the RMB exchange rate essentially means the international purchasing power of the RMB has strengthened. During the holiday, exchanging foreign currency, traveling abroad, paying for studying overseas, and online shopping abroad can save money; the costs of imported milk powder, cosmetics, cars, and fuel decrease, leading to more stable prices. On a macro level, this wave of RMB strength is driven by positive economic expectations, continuous foreign capital inflows, and strong trade support, boosting market confidence in RMB assets. Stable exchange rates and assets provide positive support for both the stock and bond markets,” said Chen Ke, a foreign exchange market expert at Gain Capital Group, in an interview with Huaxia Times.

Benefits for the stock, bond, and foreign exchange markets

The RMB appreciation during the Spring Festival was mainly driven by four factors: a weakening US dollar index, rising expectations of Federal Reserve rate cuts, steady recovery of the domestic economy, and sustained high trade surplus.

Data shows that by the end of January this year, China’s foreign exchange reserves reached $3.3991 trillion, an increase of $41.2 billion from the previous month, maintaining above 33 trillion yuan for six consecutive months; in January, bank foreign exchange settlement reached 2.04 trillion yuan, also a record high.

“Why did the RMB suddenly appreciate so much around the Spring Festival? The logic is quite simple: first, China’s foreign trade earnings in 2025 are sufficient, with the full-year trade surplus surpassing $1.076 trillion, underpinning RMB strength; second, before the holiday, companies consolidated foreign exchange settlements for wages, year-end bonuses, and payments, temporarily boosting the exchange rate; third, the market’s expectation of US rate cuts increased, the dollar weakened, and foreign capital continued to flow in steadily, all contributing to RMB appreciation,” said Huang Wei, Chief Trader at FXTM.

Guilin Hongyuan Securities’ Chief Market Analyst Gui Haoming pointed out that the RMB’s rebound would gradually correct the undervaluation of Chinese assets. In the stock market, RMB appreciation has a complex impact on different sectors but generally provides positive support to the overall market. This is reflected in rising valuations of listed companies and increased attractiveness of Chinese markets to foreign investors, encouraging more foreign capital inflows.

The strong RMB appreciation during the Spring Festival seems to confirm this view. Gui Haoming further predicted that if the RMB’s appreciation in 2026 exceeds that of 2025, the positive impact on the stock market could be even more significant.

Galaxy Securities’ research report analyzed that RMB appreciation has a clear two-way effect on bond yields, with bond markets experiencing both upward and downward pressures, leading to oscillations within a narrow range.

The report states, “RMB appreciation will create room for easing China’s monetary policy, which will drive short-term bond yields downward, exerting a downward pressure on long-term yields; meanwhile, the upward force comes from RMB appreciation typically reducing stock risk premiums, attracting international capital into Chinese equities, and increasing market risk appetite. The bond market is unlikely to see a year-long adjustment, with the 10-year government bond yield forecasted to fluctuate narrowly between 1.7% and 2.1%, with limited overall volatility.”

From the foreign exchange perspective, Wang Qing, Chief Macro Analyst at Orient Securities, believes that in the short term, considering that China’s exports are expected to maintain rapid growth in the first quarter, corporate foreign exchange demand may continue to release, and market sentiment remains high. Additionally, the possibility of a significant rebound in the US dollar index in the short term is low. Therefore, RMB should remain relatively strong around the Spring Festival. Over the year, the RMB/USD exchange rate will mainly depend on three factors: US dollar trends, changes in China’s external trade environment, and the effectiveness of domestic growth stabilization policies.

Asset allocation strategies

For investors, the real impact of RMB appreciation lies in how to reconfigure their asset allocations.

“For ordinary people, the benefits of this RMB appreciation are clear: lower costs for traveling abroad, studying overseas, and online shopping; more affordable imported goods; reduced costs for industries relying on imported raw materials such as airlines, paper, and chemicals; and for those engaged in foreign trade, don’t gamble on exchange rate movements—be sure to hedge risks; maintain a prudent approach to investment and wealth management, and avoid blindly chasing high prices due to RMB strength,” Huang Wei advised.

Huaxia Times’ reporters found that during the Spring Festival, many securities firms also provided asset allocation plans under the RMB appreciation scenario.

Western Securities stated that in the medium to long term, China’s strong industrial capacity and export competitiveness are the fundamental drivers of RMB appreciation. Exchange rate movements will profoundly influence asset allocation logic. Overall, the long-term upward trend of RMB appreciation will bring investment opportunities. Among major assets, they remain optimistic about A-shares, government bonds, and other RMB-denominated assets. For equities, focus on sectors benefiting from fundamentals, profit margin improvements, and northbound capital preferences. For commodities, pay attention to structural opportunities in industrial metals like copper. Under the RMB appreciation trend, understanding the beneficiaries of each sector is key to asset allocation.

Huatai Securities summarized the transmission channels of RMB appreciation to A-shares as four dimensions: relative fundamentals, debt effects, cost effects, and allocation effects.

Regarding fundamentals, a sustained RMB appreciation often coincides with a relatively upward cycle of China’s economy. Sectors driven by the real estate chain, advanced manufacturing, and high-beta industries like non-bank financials will benefit first from improved risk appetite. Under debt effects, industries with high dollar-denominated debt, such as motorcycles, auto parts, engineering machinery, and photovoltaic equipment, will benefit from debt reduction and exchange gains, directly boosting current profits. Cost effects favor industries with high external dependence, such as electronics chemicals, seed industry, and steel raw materials, as RMB purchasing power increases, lowering the local currency cost of imported raw materials and potentially improving gross margins. For allocation effects, increased foreign interest in Chinese equities and the inflow of northbound funds serve as important indicators for sector positioning.

“First, industries like aviation, gas, and paper are particularly sensitive to RMB appreciation or key resistance levels; second, sectors with high import reliance and low export dependence, such as steel, non-ferrous metals, and petrochemical refining, will see profit margin improvements from cost savings; third, sectors benefiting from loose monetary policy expectations, such as duty-free shops, real estate developers, and globally-oriented non-bank financials like securities and insurance, will be catalyzed by both policy and exchange rate factors,” the report said. From a market trading and profit improvement perspective, Citic Securities outlined three asset allocation paths.

Amid the recent surge and rapid correction of gold, silver, and copper prices, the outlook for commodities under RMB appreciation also warrants attention.

Western Securities’ latest report suggests: “Focus on industrial metals such as copper, aluminum, and nickel. Other commodities lack clear trend opportunities at this stage, and future movements depend on domestic demand recovery. Gold, as a traditional safe-haven asset, can be maintained as a strategic allocation, but short-term speculative trading should be cautious.”