Industrial: How will A-shares perform during the period of renminbi appreciation?

Industrial released a research report stating that on November 26th, the offshore RMB exchange rate against the US dollar rose above 7.08, reaching a new high since October 14th last year, an accumulated appreciation of nearly 5% compared to the low point of 7.43 during the period of "equivalent tariffs" in April. Looking ahead to 2026, the RMB still has solid support for appreciation. Currently, with the acceleration of the transition of China's new and old driving forces, foreign investors' perception of Chinese assets is undergoing profound changes. In the 3rd quarter of 2025, the proportion of northbound capital allocation is mainly concentrated in industries such as power equipment, electronics, pharmaceuticals, banks, food and beverage, and machinery. Industries with significant increases in allocation proportion compared to the previous quarter in the 3rd quarter of 2025 include electronics, power equipment, non-ferrous metals, machinery equipment, and communications. Recently, the RMB has been appreciating at an accelerated pace. On November 26th, the offshore RMB exchange rate against the US dollar rose above 7.08, reaching a new high since October 14th last year, an accumulated appreciation of nearly 5% compared to the low point of 7.43 during the period of "equivalent tariffs" in April. A weakening US dollar, domestic resilience in basic fundamentals and increased national competitiveness, continued efforts by the central bank to maintain a stable exchange rate policy, and the phased release of year-end settlement demand have collectively driven the strength of the RMB exchange rate. Looking ahead to 2026, the RMB appreciation still has solid support. In the short term, the US monetary policy is forced to ease, domestic policies maintain a stable "firm in the midst of loose" pattern, which is expected to support the continuation of the RMB appreciation trend. In the medium to long term, the improvement of the cross-border payment system reduces currency risk premiums, the reconstruction of the comparison of hard power between China and the US drives the transmission of currency influence, coupled with the acceleration of the de-dollarization process, the systematic undervaluation of the RMB is expected to be gradually corrected. Looking back at the period since the "exchange rate reform" in 2015, the movement of the RMB exchange rate and the trend of A-shares have shown a significant positive correlation, influenced by a combination of domestic and international economic fundamentals, monetary policy, market risk appetite, and liquidity among other factors. During the two rounds of RMB appreciation cycles in 2017-2018 Q1 and 2020 Q2-2021, A-shares were in a bull market phase, with foreign capital becoming an important incremental source of funds during these periods to drive the market upwards. 2017-2018 Q1: "Beautiful 50" market. Internationally, obstacles to medical and tax policies led to the failure of the "Trump trade", combined with a strong eurozone economy driving the weakness of the US dollar; domestically, the relative strength of exports, the bottoming out of social financing and the Producer Price Index, all contributed to the warming of the fundamentals. The RMB exchange rate appreciated from near 7 at the beginning of 2017 to around 6.25 in 2018 Q2, with foreign capital being the core source of incremental funds during this period, driving A-shares to lead the "Beautiful 50" market rally with blue-chip stocks in consumption, finance, and real estate. 2020 Q2-2021: Core asset market. Internationally, massive QE from the Federal Reserve drove a significant weakening of the US dollar; domestically, timely policy efforts combined with the resilience of exports brought about by the first recovery in the supply chain, supported China's recovery ahead of other economies overseas. The RMB exchange rate appreciated significantly from 7.2 in 2020 Q2 to 6.4 at the end of 2021, with active mutual funds and foreign capital jointly driving the core asset market rally led by new energy and consumption.