Source: Brokerage China
Author: Shi Qian

The offshore RMB Hong Kong interbank offered rate (CNH Hibor) showed an increase across major maturities on Monday; the overnight Hibor rose by 41 basis points to 2.03818%, reaching its highest level since February 20. The one-week Hibor increased by 30 basis points to 1.87879%, while the two-week Hibor rose by 24 basis points to 1.87561%, both hitting the highest point since March 7; the one-year Hibor slightly increased to 2.26697%.

So, what exactly has happened? Analysts believe that it may be related to the growing demand for RMB in the external market. Some major banks have stated that recently, the amounts exchanging currency for Hong Kong dollars and RMB have reached record highs, indicating a significant inflow of funds into the local stock market. Additionally, these banks also mentioned that the investment logic in China has changed, recommending global investors to increase their allocation to Chinese stocks.

Offshore RMB market fluctuations.

According to data relayed this noon, there was a sudden fluctuation in the offshore RMB market, with the overnight Hibor rising by 41 basis points to 2.03818%, the highest level since February 20. The one-week Hibor increased by 30 basis points to 1.87879%, and the two-week Hibor rose by 24 basis points to 1.87561%, both hitting the highest point since March 7; the one-year Hibor slightly increased to 2.26697%.

Despite the Trump administration imposing an additional 20% tariff on Chinese imported goods, the RMB has performed better than expected, hovering around 7.25 to 7.3 against the US dollar in recent weeks. This is partly due to the weakening of the USD, changes in the US economy, positive sentiment towards Chinese technology stocks, as well as the stability of the RMB midpoint and the interventions by Chinese state-owned banks to stabilize the currency. This morning, the offshore RMB even briefly rose to around 7.22.

According to a survey by Brokerage China reporters, there has indeed been a recent indication of funds that previously went abroad to speculate on US stocks returning. Most of these offshore funds are currently settled in Hong Kong and are entering the mainland market through institutions in Hong Kong or directly betting on Hong Kong stocks in the form of Northbound funds. JPMorgan also stated last week that the amount of Currency Exchange into Hong Kong dollars and RMB has reached a record high, indicating an Inflow into the local stock market.

Additionally, in a recent Research Report, Morgan Stanley upgraded the rating of the Chinese stock market, believing that the Chinese stock market has welcomed a structural mechanism shift and is expected to continue improving. Recently, Laura Wang, Morgan Stanley's Chief Equity Strategist for China, stated that now is the best time to recommend global investors increase their allocation to Chinese stocks. Looking ahead, the core logic of investing in China is undergoing changes, with the narrative logic of the Chinese story shifting from a macro perspective to a micro one. Various signs indicate that there is also a bullish atmosphere for Chinese Assets in the external environment.

What is the trend of the RMB?

Currently, the narrative logic of the RMB is leaning towards bullish, and various signs indicate that Chinese Assets are being valued again. So, what is the trend of the RMB?

From the perspective of Global Exchange Rates, non-dollar currencies have generally appreciated recently, and the RMB has also risen accordingly. However, recently,$USD (USDindex.FX)$there has been a significant decline, and the appreciation of the RMB is relatively limited. The main reason behind this is that during this period, the RMB central parity has changed little. On the one hand, this helps control the fluctuation of the RMB exchange rate against the USD and stabilizes market expectations, while also moderately releasing depreciation pressure to enhance the resilience of the RMB in the future.

Dongfang Jincheng believes that Trump's domestic and foreign policy direction is set, but the specific implementation process shows unpredictable characteristics. If related policies bring sustained severe shocks to the economy and inflation trend, the possibility of a phase-adjustment cannot be ruled out. Additionally, the recent significant decline of the USD is also due to an important reason: the EU launched an 800 billion euro "rearmament" plan. The financing prospects brought about by the large-scale bond issuance have driven European debt yields significantly higher, leading to a rapid narrowing of the US-EU interest rate spread. However, the sustainability of this trend remains to be further observed.

Additionally, Barclays issued a report pointing out that the recent weakening of the USD and the market's reduced short positions on the RMB provide a good entry opportunity. They recommend that investors take the chance to establish a long position in the USD against offshore RMB (USDCNH), specifically by buying a 3-month USDCNH forward contract, with an entry point of 7.2; a target price of 7.4; and a stop loss at 7.1.

In fact, it is not only the change in the European strategy that is worth noting; the changes in domestic policy in China and the subsequent effects of these policies may deserve even more attention. Last night, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council issued the "Special Action Plan to Stimulate Consumer Spending." The policy is relatively strong, and its effects are also worth looking forward to. If consumer spending can be stimulated and confidence restored, it will help stabilize and rebound the domestic economy, which will be a significant boost for the RMB.

Editor/Rocky