<h2>I. Recent Acceleration of RMB Appreciation, Emerging Independent Trend</h2>
Following the RMB exchange rate breaking 7 at the end of last year and the beginning of this year, it has recently accelerated its appreciation again. Since breaking the 7.0 threshold at the end of December last year, the RMB exchange rate has continued its appreciation trend into the beginning of 2026, and after the Spring Festival, it welcomed a &#34;good start,&#34; experiencing significant gains for three consecutive trading days. On February 26, the offshore RMB to USD exchange rate peaked above 6.83 during trading, reaching a new high since April 2023.
What is even more remarkable is that the RMB appreciation since February has been an &#34;active appreciation&#34; against the backdrop of a strengthening USD, leading the major non-USD currencies. The RMB appreciation since November last year has more reflected the weakening of the USD combined with the year-end &#34;settlement tide&#34; affecting market consensus expectations, characterized more by &#34;passive appreciation&#34; and expectation-driven appreciation. However, since February, despite the USD rebounding due to factors such as the nomination of Waller and geopolitical risk aversion, most major non-USD currencies have depreciated, but the RMB exchange rate has still risen against the trend, emerging as an independent trend and leading the major non-USD currencies, representing a &#34;active appreciation&#34; with strong logical support.
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What is the logic behind the recent active appreciation of the RMB? The three core driving logics of this round of RMB appreciation are: release of settlement demand, rising PPI, and improvement in capital market returns. Recently, these three factors are forming a positive resonance, jointly promoting this round of active appreciation of the RMB.
<h2>II. Core Logic of RMB Appreciation One: Release of Settlement Demand</h2>
The accelerated release of RMB settlement demand has become an important support for the recent strengthening of the RMB exchange rate. In December last year, the net settlement amount by banks for clients reached an astonishing USD 99.9 billion, setting a historical monthly high since data has been available. The latest January data reached USD 88.8 billion, slightly down from the previous month, but still at the third highest level since data has been available.
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Behind this, the seasonality and lag of settlement are the main drivers. On one hand, the end of the year and the beginning of the year is traditionally a peak season for export enterprises to recover profits and settle, with the supply and demand relationship in the foreign exchange market providing the highest level of support for RMB appreciation throughout the year; on the other hand, historical experience shows that the improvement in settlement rates lags behind RMB appreciation by about 3-6 months, and the recent significant increase in settlement scale is also gradually reflecting the previous RMB appreciation's driving effect on settlement behavior.
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Looking ahead, as the lagging demand for foreign exchange settlement is gradually released, combined with the increase in the scale of forward net foreign exchange settlement, it indicates that future settlement demand will still support the RMB exchange rate. Since 2025, the forward net foreign exchange settlement amount of banks, which reflects market exchange rate expectations, has continued to rise, reaching USD 39.3 billion in January, a new high since 2010. This indicates that under the strengthening consensus of the Federal Reserve's interest rate cut expectations and RMB appreciation, export enterprises are no longer choosing to hold currency and wait, but are beginning to lock in future exchange rates in advance, which will also support the spot exchange rate.
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In addition, as the RMB enters an appreciation channel, the potential for the return of a large amount of foreign exchange funds that have been stranded overseas in recent years should not be underestimated. In recent years, exports have remained strong, but domestic exporters have obtained foreign exchange through trade current account surpluses, with a significant amount not settled to form RMB income, but have chosen to hold various overseas assets with higher expected returns, which is estimated to have accumulated to USD 700 billion since 2022. As the RMB enters an appreciation channel, the return of these large-scale unsettled foreign exchange funds should not be underestimated in terms of its driving force for RMB exchange rate revaluation.
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<h2>III. The Core Logic of RMB Appreciation Part Two: Confirmation of PPI Upward Trend</h2>
The current RMB depreciation cycle since 2022 has been mainly influenced by two underlying logics: one is the domestic price deflation's drag on the real effective exchange rate, and the other is the decline in the return rate of Chinese assets caused by price deflation, both pointing to prices.
PPI is also a core observation indicator for foreign capital to measure the fundamentals of the Chinese economy and domestic asset returns. Historically, PPI has been highly correlated with the pace of foreign capital inflows.
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The recent further confirmation of the PPI upward trend is providing support for the proactive appreciation of the RMB. Recently, as domestic price increase signals continue to increase and the PPI upward trend is further confirmed, expectations for improvement in economic fundamentals are continuously strengthening. The RMB exchange rate, as a key indicator reflecting domestic economic expectations, has also first embraced this positive change.
Looking ahead, the repair of the new round of price cycles domestically will also form a positive feedback loop with this round of RMB appreciation cycle.
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<h2>IV. The Core Logic of RMB Appreciation: Improvement in Capital Market Returns</h2>
The A-shares have welcomed a &#34;good start,&#34; and the restoration of foreign investors' confidence in RMB assets is also an important support driving this round of RMB appreciation. In December last year, as A-shares experienced a strong &#34;continuous rise&#34; trend, the net settlement scale under securities investment reached a new high of USD 11.47 billion, further expanding to USD 25.9 billion in January this year, reflecting the continuous restoration of foreign investors' confidence in Chinese assets and accelerating the allocation of RMB assets, thus providing strong support for the proactive appreciation of the RMB. EPFR data shows that recently, active foreign capital has also seen a net inflow into A-shares for four consecutive weeks.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/fae1691e-bc7a-4006-b2a9-d4d3229fca73.jpeg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/fae1691e-bc7a-4006-b2a9-d4d3229fca73.jpeg"/>
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Looking globally, countries that have recently experienced significant currency appreciation have also seen their equity assets rise significantly, further validating the bidirectional promotion of improved capital market returns and stronger exchange rates. Since February, the Korean won, New Taiwan dollar, and RMB have shown proactive appreciation, with their corresponding equity assets leading the global market.
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Currently, the positive cycle of Chinese asset revaluation and RMB appreciation is becoming evident. It can be expected that the continuous appreciation of the exchange rate and the reversal of capital flows may lead to an accelerated revaluation of Chinese assets in the future.
<h2>V. Which Industries Benefit from the RMB Appreciation Cycle?</h2>
The four logics of how RMB appreciation affects industry allocation are: foreign capital repatriation, declining import costs, decreasing debt costs, and increased purchasing power of the RMB boosting demand. Based on these, combined with economic expectations, the following four key areas are highlighted for attention:
<ol>
<li>
Benefiting from changes in foreign capital aesthetic preferences and strong consensus between domestic and foreign capital, the growth sectors include AI hardware (communication equipment, components, semiconductors, consumer electronics), advantageous manufacturing (batteries, auto parts, chemical pharmaceuticals), and non-ferrous metals (industrial metals, energy metals);
</li>
<li>
Upstream resource products benefiting from the upward trend in domestic PPI, &#34;anti-involution,&#34; and the resonance of declining import costs due to RMB appreciation, including steel, chemicals (plastics, chemical raw materials, agricultural chemicals, rubber), etc.;
</li>
<li>
The service consumption and high-end consumption sectors benefiting from the increased purchasing power of the RMB and structural improvements in domestic demand, including duty-free, e-commerce, hotels, and catering;
</li>
<li>
Industries with reasonable current valuations, marginal improvement potential this year, and expected benefits from cost or liability improvements due to RMB appreciation include aviation airports, papermaking, logistics, etc.
</li>
</ol>
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Risk Warning: Economic data fluctuations, policy easing lower than expected, Federal Reserve interest rate cuts not meeting expectations, etc.
Source: Industrial Securities

ASHR

XBJE

MCHI

Recently, the Renminbi has accelerated its appreciation, leading the rise of major non-US currencies. The release of settlement demand, the upward trend of PPI, and the improvement in capital market returns are the three core logic driving this round of Renminbi appreciation. The appreciation of the Renminbi will impact industry allocation from four aspects: the return of foreign capital, the decrease in import costs, the reduction in debt costs, and the enhancement of Renminbi purchasing power to boost demand

- The recent appreciation of the Chinese Yuan has been marked by a significant upward trend, breaching the 6.83 level against the U.S. dollar, the highest since April 2023.  
- Key factors driving this appreciation include increased settlement demand, a rising Producer Price Index (PPI), and improved capital market returns, which have all created a conducive environment for the Yuan's strength.  
- This cycle has implications for various sectors such as AI hardware, resource products, and service consumption, all of which are poised to benefit from the Yuan's valuation changes.

Recent Independent Trend of the Renminbi: Three Core Logics