Fixed Income Commentary - The recent decline in funding prices has not led to a decrease in certificate of deposit (CD) rates, resulting in a widening spread between the two. As of September 5, the R007 (20DMA) rate was 1.50%, down 15 basis points from the end of Q2, while the 1-year AAA CD rate rose slightly to 1.665%, an increase of 3.5 basis points from the end of Q2. The spread between the 1-year CD and R007 has expanded significantly to 16.4 basis points, compared to a June average of 4.9 basis points, indicating a high level not seen in nearly two years [1][8][9]. Currency and Foreign Capital Flow - During the period of anticipated RMB depreciation, a high forward exchange rate premium attracted foreign capital inflow, leading to significant accumulation of CDs. From September 2023 to August 2024, the RMB is expected to face depreciation pressure, with the forward exchange rate premium remaining high at around 3%-4%. Foreign investors have been purchasing domestic 1-year CDs and locking in forward exchange rates, achieving a combined yield of 5%-7%, which is higher than the yield on 1-year US Treasury bonds. The difference between the forward exchange rate premium and the 1-year AAA CD yield compared to the 1-year US Treasury yield has remained positive, mostly around 1 percentage point [2][11][13]. Impact of RMB Appreciation - As the RMB shifts from depreciation pressure to appreciation pressure, the forward premium has decreased, leading to capital outflows from the bond market, particularly in CDs. Since May, the RMB has appreciated against the USD, with the 1-year forward exchange rate premium dropping to around 2%. This decline means that even with investments in domestic bonds, the overall yield is approximately 4%, comparable to the yield on 1-year US Treasury bonds. From May to July, foreign investors reduced their holdings in domestic bonds by 515.5 billion RMB, with 313.8 billion RMB attributed to CDs [3][16][21]. Foreign Capital Reduction and CD Rates - The reduction in foreign holdings of CDs has contributed to the slower decline in CD rates, resulting in a widening spread between CDs and funding rates. From April to July, foreign investors reduced their monthly holdings of CDs by an average of 104.6 billion RMB. Given that the average net financing for CDs this year has only been 1.885 billion RMB per month, the reduction in foreign holdings has had a notable impact on CD rates, potentially leading to a slower decline in rates during periods of falling funding prices [17][22].

Core Viewpoint - Deutsche Bank's report indicates that the recent strengthening of the Renminbi (RMB) against the US dollar may signal the beginning of a long-term appreciation cycle for the currency [1][2] Group 1: Economic Indicators - The RMB's exchange rate is expected to improve due to a reduction in trade tensions, despite the increase in US tariffs on Chinese goods [1] - China's export performance has exceeded expectations, with growth in non-US regions effectively offsetting the decline in exports to the US [1] - There has been a notable increase in the willingness of export enterprises to convert foreign exchange, while the demand for foreign exchange from import enterprises has weakened [1] Group 2: Market Trends - The net inflow of foreign exchange under the trade account has steadily increased in recent months [1] - The flow of northbound capital in the Chinese stock market has significantly improved since August [1] - The market's short positions against the offshore RMB are at a recent low, providing room for further strengthening of the RMB [2] Group 3: Future Projections - Deutsche Bank forecasts that the RMB will appreciate to 7.0 against the US dollar by the end of 2025 and to 6.7 by the end of 2026 [2] - The seasonal characteristics of exports and strong demand for profit repatriation at year-end are expected to drive a concentration of foreign exchange conversion by exporters in the fourth quarter [1]

Group 1: Macro Economic Insights - The recent appreciation of the RMB against the USD may be seen as a "catch-up" due to a weaker dollar environment, with the RMB appreciating by approximately 2.3% compared to a 10% depreciation of the dollar index in the first eight months of 2025 [5][6][7] - The domestic equity market's recovery and dovish signals from the Federal Reserve are key triggers for the recent rise in the RMB exchange rate, despite weaker manufacturing PMI data [6][8] - The RMB is expected to continue appreciating, but short-term fluctuations may occur due to uncertainties in global economic policies, particularly in Japan [8][9] Group 2: ETF Market Dynamics - Since June, non-broad-based ETFs have seen rapid growth, with net inflows reaching 227.9 billion RMB, indicating a shift in retail investor preferences towards ETFs [11][12] - Broad-based ETFs have experienced significant net redemptions, suggesting that while overall ETF inflows may appear modest, retail funds are actively entering the market through non-broad-based ETFs [12][13] - The current bull market is characterized by a shift from actively managed funds to ETFs, driven by factors such as product variety, cost efficiency, and ease of access [13][14] Group 3: Power Equipment and New Energy Sector - The photovoltaic industry is facing severe overcapacity, with nominal production capacity exceeding 1200 GW, leading to significant price declines across the supply chain [18][19] - Recent government initiatives aim to curb internal competition and stabilize the market, with signs of price recovery in the polysilicon segment [19][20] - Despite ongoing losses in the main supply chain, specialized companies are performing better than integrated firms, indicating a potential for recovery as supply-demand dynamics improve [20][21] Group 4: Chemical Industry Performance - The chemical raw materials and products manufacturing sector reported a revenue of 4.46359 trillion RMB in H1 2025, a year-on-year increase of 1.4%, but profits fell by 9% to 181.46 billion RMB [23][24] - The basic chemical industry achieved a revenue of 1.1707 trillion RMB in H1 2025, with a profit of 73.17 billion RMB, reflecting a 3.5% revenue increase year-on-year [24][25] - The petrochemical sector, excluding major state-owned enterprises, saw a revenue decline of 7.3% in H1 2025, indicating challenges in profitability [25][26] Group 5: Pharmaceutical Sector Developments - Sunshine Nuohuo (688621.SH) reported a revenue of 590 million RMB in H1 2025, a 4.87% increase, with a significant Q2 performance showing a 15.73% year-on-year growth [28][29] - The company is advancing its innovative drug pipeline, with multiple projects in clinical trials, indicating a strong growth trajectory [29][30] - Haofan Bio (301393.SZ) achieved a revenue of 270 million RMB in H1 2025, reflecting a 20.10% increase, driven by strong demand for GLP-1 drugs [32][33] Group 6: Food and Beverage Sector Insights - Shanxi Fenjiu (600809.SH) reported a revenue of 23.96 billion RMB in H1 2025, a 5.4% increase, but faced pressure on profit margins due to changing consumer preferences [40][41] - Wuliangye (000858.SZ) achieved a revenue of 52.77 billion RMB in H1 2025, a 4.2% increase, but is navigating challenges in maintaining price stability amid competitive pressures [45][46]

Core Viewpoint - The recent appreciation of the offshore RMB against the USD has become a focal point in the market, with significant increases observed since August, indicating strong market performance [1][3]. Group 1: Market Trends - Since August, the offshore RMB has appreciated significantly against the USD, with an increase of nearly 1000 basis points and approximately 3000 basis points compared to the low in early April [1]. - Hedge funds are actively increasing their bets on the continued appreciation of the RMB, with expectations that the exchange rate may reach 7 or higher by year-end [1][3]. - The demand for options that profit from RMB appreciation is on the rise, reflecting a shift in hedge fund strategies [3]. Group 2: Influencing Factors - Multiple factors are contributing to the RMB's appreciation, including enhanced market confidence in the Chinese economy due to supportive policy signals and changes in U.S. interest rate expectations [3]. - The trading volume of foreign exchange options in the onshore market surged to $227.8 billion in July, the highest level since 2015, indicating a strategic shift among exporters [3]. - Analysts from Huatai Securities and CICC highlight that the recent appreciation is influenced by the adjustment of the daily USD/CNY midpoint and increased global interest in Chinese equity assets [4]. Group 3: Market Sentiment - There is a divergence of opinions regarding whether the RMB will break below the 7 mark, with the strengthening of the Chinese stock market often correlating with RMB appreciation [4]. - The current market environment reflects not only the resilience of the Chinese economy but also global investor confidence in the Chinese market [4].

Core Viewpoint - The recent appreciation of the Chinese yuan is attributed to a combination of a weakening US dollar and proactive measures by the People's Bank of China, leading to discussions about a potential new strong cycle for the yuan [1][3][15] Group 1: Factors Influencing Yuan Appreciation - The immediate trigger for the yuan's rise was the dovish signal from Federal Reserve Chairman Jerome Powell, which led to a decline in the US dollar index [3] - The People's Bank of China has been actively adjusting the yuan's central parity rate, signaling a commitment to stabilize the exchange rate [3][7] - Positive domestic economic data, including a GDP growth of 5.3% in the first half of 2025, has bolstered confidence in the yuan [5][7] Group 2: Market Reactions and Trends - The onshore yuan appreciated by 600 basis points in August, marking the largest increase in three months and pushing the exchange rate below 7.10 [5] - There is a growing trend among international sovereign funds and large asset management institutions to increase their allocation to yuan-denominated assets, driving demand for the currency [9] - The global trend of "de-dollarization" is gaining momentum, with some countries shifting their foreign exchange reserves to include more yuan, providing long-term support for its value [9] Group 3: Implications of Yuan Strength - A stronger yuan reduces import costs for companies reliant on imported raw materials, benefiting sectors like aviation and paper manufacturing [10] - However, the appreciation may weaken the price competitiveness of export products, posing challenges for small and medium-sized enterprises [10][11] - The strength of the yuan reflects China's increasing international financial standing and the need for careful management of its financial responsibilities [13][15] Group 4: Future Considerations - The continuation of the yuan's strong position will depend on several factors, including potential interest rate cuts by the Federal Reserve, China's economic policies, and the stability of US-China trade relations [13][15]

Core Viewpoint - The Chinese Yuan (CNY) has experienced a strong appreciation against the US Dollar (USD) in August, reaching a nine-month high, which is expected to enhance the attractiveness of CNY-denominated assets and potentially boost the A-share market [1] Exchange Rate Performance - On the last trading day of August, the CNY/USD spot exchange rate hit a high of 7.1260, closing at 7.1330, an increase of 55 basis points from the previous day, and a total weekly gain of 475 basis points [1] - Throughout August, the CNY/USD spot exchange rate rose from 7.1930 to 7.1330, marking a cumulative increase of 0.83% [1] - The CNY/USD central parity rate appreciated from 7.1494 at the end of July to 7.1030 at the end of August, reflecting a nearly 0.65% appreciation [1] Market Analysis - The strategy team at Zheshang Securities noted that the ongoing US Federal Reserve's interest rate cut cycle and the weakening foundation of the USD are favorable for the CNY's performance [1] - The adjustment of the central bank's exchange rate midpoint signals a more optimistic outlook [1] - Under a neutral assumption, the future CNY exchange rate is expected to return to the "6 era" within the next six months, which could enhance the dual returns of exchange rates and assets, thereby increasing the attractiveness of CNY assets [1]

Group 1: Currency Dynamics - The recent appreciation of the RMB is seen as a concentrated release of previously "stagnant" gains, influenced by both policy and stock market movements[1] - Since the Jackson Hole meeting on August 22, the RMB has appreciated significantly, with the central bank's midpoint rate adjusted up by 258 pips since August 25[2] - The RMB's previous stagnation, with only a 1.2% increase since January despite a 10% decline in the USD index, created momentum for this appreciation[3] Group 2: Market Interactions - The strong rebound in the A-share market on August 28 coincided with the RMB's rapid appreciation, indicating a restoration of market sentiment[3] - The A-share market has shown a notable profit effect compared to US markets, leading to a potential inflow of funds back into China[3] - The RMB's recent rise is not solely due to cross-border capital inflows; it is also seen as an attractive carry currency, prompting institutional buying[4] Group 3: Future Outlook - The RMB's appreciation trend is expected to continue, with potential to reach around 7 against the USD if the central bank eases restrictions[6] - The central bank may adopt a gradual approach to adjusting the midpoint rate to avoid excessive market volatility[6] - The shift in global asset allocation towards higher-yielding RMB assets is likely to support the A-share market and enhance confidence in economic recovery[6]

1. Report Industry Investment Rating - There is no information provided regarding the report's industry investment rating 2. Core Viewpoints of the Report - The dovish remarks from Powell at the global central bank annual meeting increased the certainty of a September interest rate cut in the US, causing the US dollar index to weaken in recent trading days. The recent appreciation of the RMB exchange rate is mainly driven by the weak US dollar, and there are also positive domestic signals. If the stock market rally continues, the RMB exchange rate may gain new support. It is recommended to pay attention to domestic policy guidance [2][17][19] 3. Summary by Related Catalogs Exchange Rate Market Situation - Since last Friday, the exchange - rate market has seen amplified fluctuations due to the global central bank annual meeting. The US dollar index has weakened, non - US currencies have strengthened, the RMB has appreciated against the US dollar but depreciated against a basket of currencies, and the on - shore, offshore, and mid - price of the RMB have converged [2][10][17] - In April, the RMB exchange rate reached a high of 7.4295 and then appreciated. Recently, it has strengthened again, reaching a low of 7.1407 (offshore). The US dollar index has dropped from around 103 to below 100, and the RMB exchange - rate index has been declining unilaterally since April [3] Factors Affecting the US Dollar - This year, overseas uncertainties and geopolitical risks have increased, and the US dollar's fluctuations are centered around the Trump administration, Fed policies, and the US economy. The impact of tariffs is stabilizing, and future attention will focus on how macro data affects Fed policies [17] - Powell's dovish remarks increased the certainty of a September interest rate cut, and Trump's intention to remove Fed governor Cook may increase his control over the Fed, challenging the Fed's independence. The US dollar index has weakened and broken the rebound trend since July [2][17] Factors Affecting the RMB - The recent appreciation of the RMB is mainly due to the weak US dollar. Domestically, the central bank has increased the issuance of offshore central - bank bills in August, with new issuance of 45 billion and net financing of 30 billion after deducting maturities. The mid - price has strengthened, signaling an intention to stabilize the exchange rate [2][19] - The stock market has reached a 10 - year high in the past two months, but the rally has not driven the RMB exchange rate up as foreign investors have mainly reduced their bond holdings. If the stock - market rally continues, the RMB exchange rate may get new support [19]

Core Viewpoint - The Chinese yuan has appreciated significantly, reaching a new high against the US dollar, influenced by expectations of potential interest rate cuts by the Federal Reserve [1][3][4]. Exchange Rate Movements - On August 25, the yuan's central parity rate was raised by 160 basis points to 7.1161 yuan per dollar, marking the highest level since November 2024 [3]. - Both onshore and offshore yuan appreciated against the dollar, with the onshore rate peaking at 7.1478 and the offshore rate at 7.149 [3]. - By the end of the day, the onshore yuan was at 7.1563, up 0.12%, and the offshore yuan at 7.159, up 0.17% [3]. Impact of Federal Reserve's Signals - Federal Reserve Chairman Jerome Powell's recent comments suggested a possible interest rate cut in the coming months, leading to a decline in the dollar index by 0.94% on August 22 [4]. - The market anticipates a 25 basis point rate cut at the Fed's upcoming meeting, which could further weaken the dollar and support the yuan's appreciation [4][5]. Market Dynamics and Predictions - Analysts indicate that the yuan's strength is supported by a combination of stable domestic policies, positive performance in the equity market, and expectations of Fed rate cuts [4][5]. - The yuan's appreciation trend is expected to continue, with September being a critical observation window for potential further gains [5][6]. - The People's Bank of China emphasizes the importance of market forces in determining exchange rates while maintaining stability [6][7]. Future Outlook - The yuan is projected to strengthen further, especially if a mutually beneficial outcome is reached in the ongoing US-China trade negotiations [7]. - The effectiveness of domestic growth policies and the progress of US-China economic discussions will be crucial for the yuan's future trajectory [6][7].

Core Viewpoint - The report from China Merchants Securities indicates that September may serve as an observation window for the appreciation of the RMB, with potential implications for foreign capital inflow and a comprehensive revaluation of Chinese assets, particularly in the consumer sector [1][6]. Group 1: Domestic Asset Framework - The "PPI-Liquidity Framework" suggests that PPI influences asset styles while liquidity determines asset direction, reflecting the impact of different macroeconomic cycles on various asset classes [2]. - The framework categorizes economic scenarios into four quadrants based on liquidity and PPI trends, with the current domestic asset situation positioned in the third quadrant, transitioning to the fourth quadrant by mid-2024 [2][3]. - PPI is a leading indicator for corporate profitability in A-shares, with a typical three-month lead time, indicating that PPI recovery correlates with improved corporate earnings and economic expectations [2]. Group 2: PPI Trends and Structural Adjustments - The global inventory cycle and oil prices are expected to influence PPI recovery, with projections indicating a shift to active inventory replenishment by Q3 2024 [4]. - The focus of policy adjustments in the second half of the year may center on price levels, aligning with anti-involution strategies, which could trigger a shift in asset styles towards inflation and domestic demand strategies [4][6]. - Although PPI is expected to have bottomed out, a positive turnaround is not anticipated until mid-2024, which may not significantly impact current market styles [4]. Group 3: RMB Exchange Rate and Asset Revaluation - The report highlights a willingness to appreciate the RMB against a backdrop of USD depreciation, supported by strong export performance and favorable economic conditions [5][6]. - September is identified as a critical observation period for RMB appreciation, particularly if the Federal Reserve proceeds with interest rate cuts, which could enhance the attractiveness of Chinese equity assets to foreign investors [5][6]. - The implementation of anti-involution policies is expected to improve the competitive landscape for Chinese enterprises, potentially leading to significant foreign capital inflows and a comprehensive revaluation of Chinese assets, especially in the consumer sector [1][6].