Investment Rating - The industry rating is "Buy" as of March 22, 2026, consistent with the previous rating [4]. Core Insights - The report highlights that net settlement remains at a high level, with cross-border capital inflow significantly supplementing M2 and base currency [12]. - In February, the arbitrage trading return rate declined rapidly, with the US dollar and RMB showing a strong dual performance. The US dollar index rose by 0.54%, influenced by reduced interest rate expectations and increased demand for safe-haven assets due to geopolitical tensions [13]. - The report indicates that the net cross-border capital inflow in February remained high, with a surplus of 247.3 billion yuan in bank customer foreign exchange payments, a year-on-year increase of 39.1 billion yuan [14]. - The willingness to settle in RMB has significantly increased, with net settlement in February reaching 383.3 billion yuan, a year-on-year increase of 431.1 billion yuan [34]. Summary by Sections Section 1: Current Observation - The report discusses the February data on bank settlement and foreign exchange payments, noting that net settlement remains high and cross-border inflows are providing significant support to M2 and base currency [12]. Section 2: Arbitrage Trading Returns - The arbitrage trading return rate has decreased, with the RMB appreciating against the US dollar by 1.34% in February, driven by strong export performance and overall increased willingness to settle [13][14]. Section 3: SDR Major Economies Tracking - The report includes tracking of major economies, noting a slight seasonal increase in unemployment rates in China and the US, and a marginal appreciation of the Japanese yen against the offshore RMB [8]. Section 4: Historical Data - Historical data on bank foreign exchange payments and settlements is provided, showing trends in surplus and deficits across various categories, including goods and services [17][35].

Group 1: Macroeconomic Liquidity - The US dollar index continued to rise, and the degree of inversion in the China-US interest rate spread deepened, with inflation expectations also increasing [2][16] - Offshore US dollar liquidity has marginally tightened, while the domestic interbank funding situation remains balanced [2][23] Group 2: Market Trading Activity and Volatility - Market trading activity has decreased, with major indices experiencing increased volatility; sectors such as oil and petrochemicals, electric new energy, public utilities, and construction are above the 90th percentile in trading activity [3][28] - The volatility of major indices, including the CSI 300 and ChiNext, has continued to rise, with steel and military sectors also showing volatility above the 90th historical percentile [3][35] Group 3: Institutional Research - The banking, electronics, electric new energy, computing, and automotive sectors are leading in research activity, with banking and automotive sectors showing a month-on-month increase in research heat [4][46] Group 4: Analyst Forecasts - Analysts have simultaneously raised net profit forecasts for the entire A-share market for 2026/2027, with increases noted in sectors such as electric new energy, non-ferrous metals, construction, machinery, and pharmaceuticals [5][19] - The proportion of stocks with upward revisions in net profit forecasts for 2026/2027 has increased across the A-share market [5][17] Group 5: Northbound Trading Activity - Northbound trading activity has decreased, continuing to net sell A-shares, with a notable increase in the buy/sell ratio for electric new energy, electronics, and automotive sectors [6][32] - Northbound trading primarily net bought coal and oil and petrochemical sectors, while net selling occurred in electronics, computing, and chemicals [6][33] Group 6: Margin Financing Activity - Margin financing activity has slightly increased but remains at a low level, with net buying primarily in electric new energy, chemicals, and computing sectors [7][35] - The proportion of financing purchases has increased across most sectors, with net buying focused on mid-cap growth and mid/small-cap value stocks [7][38] Group 7: Active Equity Funds and ETFs - Active equity funds have increased their positions, particularly in military, machinery, and automotive sectors, while reducing positions in non-ferrous metals, oil and petrochemicals, and steel [9][45] - ETFs have continued to experience net redemptions, particularly in broad-based indices like CSI 500, CSI 300, and ChiNext, while sectors such as electric power and public utilities saw net inflows [9][52]

Core Viewpoint - The Chinese Yuan (RMB) has experienced a rapid appreciation against the US Dollar post the Spring Festival, with both onshore and offshore RMB returning to levels not seen since April 2023 [2][3][4]. Exchange Rate Performance - From February 25 to 26, the onshore and offshore RMB broke through the 6.87 and 6.84 thresholds, respectively, with the offshore RMB reaching a high of 6.82665 on February 26, marking a new high for 2023 [2][3]. - Year-to-date, the onshore and offshore RMB have appreciated approximately 2% against the US Dollar, maintaining a strong performance since breaking the 7.0 mark at the end of 2025 [2][4]. Factors Driving Appreciation - The recent appreciation of the RMB is attributed to multiple factors, including external environment changes, domestic economic fundamentals, and market behavior [5][15]. - Improvements in Sino-US trade relations since November 2025 and a weakening US Dollar due to various economic pressures have contributed to the RMB's strength [5][15]. - Increased demand for currency settlement from enterprises has also supported the seasonal strengthening of the RMB, with significant surplus figures reported in December 2025 and January 2026 [6][16]. Market Sentiment and Future Outlook - Market sentiment remains strong, with analysts predicting continued appreciation of the RMB in the short term, supported by high export growth and favorable market conditions [8][19]. - Despite the recent strong performance, analysts caution that the RMB's future trajectory will be influenced by various factors, including the US Dollar's performance and potential geopolitical uncertainties [9][20]. Policy Considerations - The People's Bank of China (PBOC) emphasizes a managed floating exchange rate system, aiming to maintain stability and prevent excessive fluctuations in the RMB's value [10][21].

Core Viewpoint - The Chinese Yuan (CNY) has experienced a significant appreciation against the US Dollar (USD) since the beginning of the year, with both onshore and offshore rates rising approximately 2% [2][3]. Exchange Rate Movements - After the Spring Festival, the CNY quickly appreciated, with onshore and offshore rates breaking key levels of 6.87 and 6.84 respectively, reaching a high of 6.82665 on February 26, marking the highest level since April 2023 [2][3]. - The CNY's midpoint rate was adjusted up by 93 basis points to 6.9231 on February 26, reflecting a strong upward trend in the exchange rate [3]. - Year-to-date, the onshore and offshore CNY have appreciated by approximately 2.13% and 1.98% respectively, with a cumulative appreciation of nearly 450 basis points in February alone [3][4]. Factors Driving Appreciation - The recent appreciation of the CNY is attributed to multiple factors, including improvements in the external environment, domestic economic resilience, and market behavior [5]. - The stabilization of China-US trade relations since November 2025 has contributed to a favorable external backdrop for the CNY [5]. - The weakening of the USD, driven by various factors including the US fiscal deficit and inflation expectations, has also supported the appreciation of the CNY [6]. Market Sentiment and Future Outlook - Market sentiment has been positive, with the offshore CNY leading the appreciation, indicating a strong market mood [4]. - Analysts expect the CNY to maintain a stable and slightly appreciating trend throughout the year, despite potential fluctuations due to external uncertainties [9][10]. - The People's Bank of China (PBOC) aims to ensure the CNY remains stable at a reasonable equilibrium level, emphasizing the importance of managing expectations and preventing excessive volatility [10].

Core Viewpoint - The recent strengthening of the Renminbi (RMB) is influenced by both internal and external factors, with significant movements in the offshore market and a notable increase in foreign capital inflow [2][4][6]. Group 1: Currency Movements - The offshore RMB against the USD broke the 6.90 mark, reaching a high of 6.9060, while the onshore rate peaked at 6.9112, marking the first time in three years that the offshore rate surpassed 6.92 [2] - The CFETS RMB exchange rate index rose by 1.35, while the BIS currency basket index increased by 1.38, indicating a general strengthening of the RMB [8] Group 2: Foreign Capital Inflow - There has been a continuous net inflow of foreign capital through the northbound trading channel, with significant purchases of RMB-denominated bonds, indicating a growing international confidence in the RMB [6][12] - In January, China's foreign exchange reserves reached $3.3991 trillion, an increase of $41.2 billion, marking the highest level since December 2015 [4][17] Group 3: Economic Fundamentals - China's trade surplus remains robust, with the country maintaining the largest volume of goods trade globally, which supports the stability of the RMB [4][12] - The expectation of a decline in the Federal Reserve's interest rates and the narrowing of the interest rate differential between China and the US are attracting capital inflows into RMB assets [12] Group 4: Market Sentiment and Predictions - Market sentiment has shifted towards a view of "range fluctuations" for the RMB, with predictions suggesting a trading range of 6.90 to 7.00 in 2026, contingent on breaking the critical point of 6.90 [19] - Analysts caution that while the current conditions are favorable, the strength of the RMB may wane after seasonal factors dissipate, and future movements will depend on external variables [8][12]

Core Viewpoint - The article discusses the recent strengthening of the Renminbi (RMB) against the US dollar, highlighting the factors contributing to this trend and the implications for businesses and individuals during the upcoming Chinese New Year holiday [3][5][11]. Group 1: RMB Strengthening Factors - The RMB has recently appreciated, with both onshore and offshore rates showing a consistent upward trend, attributed to improved external conditions, a weaker US dollar, and increased demand for currency exchange from enterprises [5][6]. - The RMB exchange rate against the US dollar has been influenced by the stabilization of China-US trade relations since November 2025, as well as a decline in the US dollar due to investigations into the Federal Reserve Chairman [5][11]. - Seasonal factors, such as increased corporate demand for currency exchange before the Chinese New Year, have also contributed to the RMB's strength [6][7]. Group 2: Implications for Individuals and Businesses - For individuals, the appreciation of the RMB reduces the cost of currency exchange, making it a favorable time for overseas travel or study, although decisions should be based on actual needs rather than speculation [8][9]. - For foreign trade enterprises, while the RMB's appreciation may not significantly impact export volumes, it could affect exchange rate gains, necessitating careful management of foreign exchange risks through hedging strategies [9][11]. - Experts suggest that businesses should focus on their foreign exchange exposure and cost management rather than attempting to predict short-term currency fluctuations [9][11]. Group 3: Future Outlook - The future trajectory of the RMB will largely depend on the US dollar's performance, external economic conditions, and domestic growth policies [11][12]. - Analysts predict that the RMB may experience fluctuations around the 7.0 to 7.2 range against the US dollar, with potential for short-term volatility due to changing external environments [12][13]. - The first quarter of 2026 may see continued appreciation of the RMB, supported by positive economic indicators and stable international relations, particularly ahead of a potential meeting between the leaders of China and the US [13].

Core Viewpoint - The recent strengthening of the RMB against the USD is influenced by multiple factors, including improved external conditions, a weaker USD, and increased corporate demand for currency exchange, while the People's Bank of China is managing the RMB's midpoint rate to prevent rapid appreciation [1][2][7]. Group 1: RMB Exchange Rate Dynamics - The RMB has recently appreciated, with both onshore and offshore rates breaking the 6.9 mark against the USD, marking a significant pre-holiday financial market highlight [1]. - The midpoint rate for the RMB against the USD was set at 6.9457 on February 12, a depreciation of 19 basis points from the previous day [1]. - Analysts attribute the RMB's strength to a combination of external environment improvements, a weaker USD, and seasonal corporate currency exchange demands [2][3]. Group 2: Factors Influencing Exchange Rate During Spring Festival - Key factors affecting the RMB exchange rate during the Spring Festival include changes in the US-China interest rate differential, the USD index, domestic cross-border capital flows, and market expectations regarding economic policies [3][4]. - The market is expected to remain optimistic, with continued corporate demand for currency exchange leading up to the holiday, while the likelihood of a significant rebound in the USD index is low [4]. Group 3: Implications for Residents and Businesses - For residents, the appreciation of the RMB reduces currency exchange costs, making it a favorable time for overseas travel and study, but decisions should be based on actual needs rather than speculation [5][6]. - For foreign trade enterprises, the RMB's appreciation may affect exchange rate gains, but it is not expected to significantly impact export levels; businesses are advised to manage foreign exchange risks through hedging strategies [6][7]. Group 4: Policy and Future Outlook - The People's Bank of China has been adjusting the RMB midpoint rate to guide market expectations and prevent rapid appreciation, indicating a focus on maintaining stability in the exchange rate [7][8]. - Future RMB exchange rate movements will depend on the USD's performance, external economic conditions, and the effectiveness of domestic growth policies, with predictions suggesting a range of 6.85 to 7.05 in February [8].

Investment Rating - The industry rating is "Buy" [4] Core Views - The trade return ratio has turned positive again, and the service trade deficit has significantly narrowed [16][18] - The cross-border capital flow is expected to gradually return, positively impacting domestic liquidity [5][19] - The service trade deficit for December 2025 was 966 billion CNY, a year-on-year decrease of 466 billion CNY, with a full-year deficit of 13,760 billion CNY, down 2,544 billion CNY, approximately 16% [18] Summary by Sections 1. Current Observation - The State Administration of Foreign Exchange (SAFE) released data on China's international balance of payments for December 2025, indicating a potential impact on the central bank's willingness to settle foreign exchange [16] - The trade return ratio is at a historical high, with a monthly unconverted trade net outflow of 447 billion CNY, a year-on-year increase of 1,392 billion CNY [17] 2. Arbitrage Trading Returns - The arbitrage trading return rate for 10Y US Treasury bonds in CNY has dropped significantly to -1.77%, indicating a shift in cross-border capital dynamics [17] 3. Service Trade Deficit - The service trade deficit has narrowed significantly, with major contributions from improved policies for foreign visitors, reduced international shipping costs, and enhanced competitiveness in high-tech services [18] 4. Cross-Border Liquidity Outlook - Despite the recent appointment of Kevin Warsh as the next Federal Reserve Chair, the trend of cross-border capital return is expected to continue, influenced by the Fed's monetary policy stance [19][21] - The short-term liquidity in the US remains tight, with limited space for balance sheet reduction, while long-term prospects depend on economic performance [20][21]

Core Viewpoint - The Federal Reserve has decided to maintain the current interest rate, pausing any rate cuts, while China's Loan Prime Rate (LPR) remains unchanged for eight consecutive months, reducing the likelihood of short-term mortgage rate decreases for homebuyers [1][3]. Group 1: Impact of Federal Reserve's Decisions - The Federal Reserve's interest rate, known as the federal funds rate, serves as a benchmark for the financial market and influences global capital flows due to the dollar's status as the world currency [3]. - A pause in rate cuts by the Federal Reserve stabilizes dollar asset yields, which slows capital movement and alleviates pressure on the Renminbi exchange rate [3][5]. Group 2: China's Monetary Policy Context - China's monetary policy is primarily driven by domestic economic conditions, contrasting with the Federal Reserve's aggressive rate hikes from March 2022 to July 2023 to combat inflation [6]. - The Chinese economy is expected to grow at a GDP rate of 5% by 2025, supported by a shift in policy focus from monetary to fiscal measures, which are more direct and effective in stimulating specific sectors [6][11]. Group 3: Banking Sector Considerations - As of Q3 2025, the net interest margin for commercial banks in China is only 1.42%, indicating pressure on banks to maintain profitability while managing deposit and loan rates [7]. - Continuous reductions in loan rates have been made to support the real economy, but banks face challenges in lowering deposit rates without risking a loss of savings [7][10]. Group 4: Future Interest Rate Outlook - There is still potential for rate cuts, as indicated by the Deputy Governor of the People's Bank of China, with room for adjustments in reserve requirements and funding costs [10][11]. - However, the likelihood of comprehensive rate cuts in the short term is low, as the current mortgage rates are already at historical lows, and the market is in a transitional phase [11].

Core Viewpoint - In 2025, the interbank foreign exchange market in China operated smoothly under comprehensive regulatory measures, with a steady increase in trading volume and active market participation, achieving a record high in transaction scale and daily average turnover [1][2]. Group 1: Foreign Exchange Market Performance - The cumulative transaction volume in the interbank foreign exchange market reached 48.52 trillion USD in 2025, with a daily average turnover of 199.66 billion USD, marking a year-on-year growth of 6.54% [1]. - The daily average transaction volume for the RMB foreign exchange market was 14.87 billion USD, with all varieties except for forwards showing an increase in daily average transaction volume [1]. - By the end of 2025, the RMB to USD exchange rate was reported at 6.9890, appreciating by 4.43% compared to the end of the previous year [2][3]. Group 2: RMB Exchange Rate Dynamics - Throughout 2025, the RMB to USD exchange rate experienced fluctuations, initially under pressure but later showing signs of strengthening and significant appreciation [2][3]. - The CFETS RMB exchange rate index ended the year at 97.99 points, reflecting a decline of 3.43% for the year [2]. - The annualized volatility of the exchange rate was recorded at 2.53%, a decrease of 0.51 percentage points from 2024 [2]. Group 3: Influencing Factors on RMB Exchange Rate - The RMB exchange rate faced pressure in April 2025 due to heightened trade tensions between China and the US, with the onshore RMB briefly falling below the 7.35 mark [3]. - Factors contributing to the RMB's subsequent rebound included easing trade tensions and a weakening US dollar due to concerns over the US economic outlook and fiscal issues [4]. - By the end of 2025, both onshore and offshore RMB broke through the significant psychological level of 7.0, driven by improved domestic economic fundamentals and stabilizing market expectations [4]. Group 4: Swap Market Trends - In 2025, the RMB swap curve shifted upward, reaching a three-year high, influenced by narrowing interest rate differentials between China and the US [5][6]. - The one-year RMB to USD swap points showed a significant upward trend, particularly in the second half of the year, with the spread against interest rate parity stabilizing in positive territory [6]. - The People's Bank of China issued a total of 300 billion RMB in offshore central bank bills throughout the year, maintaining tight liquidity in the offshore RMB market [6]. Group 5: Dollar Market Liquidity - The domestic dollar borrowing rates remained low throughout 2025, with the overnight borrowing rate fluctuating between 4.25% and 4.33% [7]. - The interest rate differential between domestic and foreign dollar markets widened in the second half of the year, reaching a three-year low of -40 basis points [7]. - By the end of 2025, domestic overnight rates and SOFR were recorded at 3.62% and 3.87%, respectively, both showing declines from the previous year [7].