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].

Group 1: PPI and Asset Framework - The "PPI-Liquidity Framework" indicates that PPI determines asset style while liquidity determines beta, reflecting the impact of different macroeconomic cycles on various assets[1] - The framework consists of four quadrants: 1. Quadrant 1: Liquidity expansion + PPI up corresponds to overheating, favoring cyclical assets 2. Quadrant 2: Liquidity contraction + PPI up corresponds to stagflation, favoring short-duration assets 3. Quadrant 3: Liquidity contraction + PPI down corresponds to recession, favoring bonds over stocks 4. Quadrant 4: Liquidity expansion + PPI down corresponds to recovery, favoring both stocks and bonds[1] - As of 2024, domestic assets were in Quadrant 3 before September 24, and in Quadrant 4 from September 24 to mid-2025[1] Group 2: PPI Trends and Economic Implications - PPI is a leading indicator for corporate profits, typically leading A-share profit cycles by about three months[1] - A rebound in PPI is expected to signal a transition from recession to recovery, improving corporate profit expectations[1] - The global inventory cycle and oil prices are anticipated to drive PPI recovery, with a potential bottom reached in June-July 2025[1][2] Group 3: Currency and Investment Outlook - A strong dollar (≥100) combined with a depreciating RMB may lead to reduced foreign investment in Chinese equities, while a weak dollar (<100) with an appreciating RMB is likely to attract foreign investment[1] - The RMB's appreciation is supported by strong export performance and favorable global trade conditions, particularly after tariff adjustments by other economies[1][2] - If the RMB returns to the 6 range, it could enhance the attractiveness of Chinese equities, leading to a comprehensive asset revaluation[1][2]