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 remained 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, outbound travel, studying abroad payments, and cross-border shopping 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 JC Group, to the 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 stability 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, by 2025, China’s foreign trade earnings will be substantial enough, with a full-year trade surplus exceeding $1.076 trillion, underpinning RMB strength; second, before the holiday, companies concentrated on foreign exchange settlement for wages, year-end bonuses, and payments, temporarily boosting the exchange rate; third, expectations of overseas market rate cuts increased, the US dollar weakened, and combined with steady foreign capital inflows, multiple factors pushed the RMB higher,” said Huang Wei, chief trader at FTSE FX.

Guo Haoming, chief market analyst at Shenwan Hongyuan Securities, pointed out in an article that the RMB’s rebound will gradually correct the undervaluation of Chinese assets. The impact of RMB appreciation on different industries in the stock market is complex, but overall, it has a positive effect on the broader market. This is reflected in the increased valuation of listed companies and also in attracting more foreign investment into China, strengthening China’s market appeal.

The strong RMB appreciation during the Spring Festival seems to confirm this view. Guo further predicted that if the RMB appreciates more in 2026 than in 2025, the positive impact on the stock market will be even more significant.

Galaxy Securities released a research report analyzing that RMB appreciation has a clear two-way effect on bond yields, with bond markets experiencing both upward and downward forces, 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 down and exert downward pressure on long-term yields; meanwhile, the upward force comes from RMB appreciation often reducing stock risk premiums, attracting international capital inflows 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.”

Regarding the foreign exchange market, 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, market sentiment remains high, and the possibility of a significant rebound in the US dollar index in the short term is low. Therefore, the RMB is expected to 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.

How to allocate major assets

In fact, for investors, the real impact of RMB appreciation lies in how to reconfigure asset allocation.

“For ordinary people, the benefits of this RMB appreciation are quite clear: lower costs for traveling abroad, studying abroad, and cross-border shopping; more affordable imported goods; reduced costs for industries relying on imported raw materials such as airlines, paper manufacturing, and chemicals; friends engaged in foreign trade should not gamble on exchange rate movements but focus on risk hedging; and maintain a prudent approach to investment and wealth management, avoiding 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 strength and export competitiveness are the fundamental drivers of RMB appreciation. Exchange rate movements will profoundly influence asset allocation logic. Overall, the long-term RMB appreciation trend will bring investment opportunities. Among major assets, confidence remains high in A-shares, government bonds, and other RMB-denominated assets. Equity markets should focus on fundamentals, profit margin improvements, and northbound capital preferences. For commodities, attention should be paid to structural opportunities in industrial metals like copper. Under the RMB appreciation trend, capturing the benefits across sectors is key to asset allocation.

Huatai Securities summarized the transmission channels of RMB appreciation’s impact on A-shares into four dimensions: relative fundamentals, debt effects, cost effects, and allocation effects.

From the fundamentals perspective, a sustained RMB appreciation often coincides with an economic cycle upturn in China. Leading sectors such as real estate, 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 ratios—such as motorcycles, auto parts, engineering machinery, and photovoltaic equipment—will benefit from debt reduction and exchange gains, directly boosting current profits. Cost effects will benefit sectors dependent on external inputs, 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 industry profit margins. The allocation effect indicates that increased foreign interest in Chinese equities, especially northbound capital inflows, will serve as a key indicator for sector allocation.

“First, industries like aviation, gas, and paper are particularly sensitive to RMB appreciation or key resistance levels; second, industries with high import dependence and low export dependence, such as steel, nonferrous metals, and petrochemical refining, will see profit margins improve due to 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 firms and insurers, will receive policy and exchange rate boosts,” Citic Securities’ research report outlined three asset allocation paths.

Amid the recent surge and rapid correction of gold, silver, and copper prices, attention is also drawn to how commodity markets will perform under RMB appreciation.

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 approached with caution.”

(Article source: Huaxia Times)