CITIC Securities: This round of RMB appreciation is different from any previous round in history.

The research report by Citic Securities pointed out that, from a strategic perspective, many signs indicate that the current appreciation of the RMB is different from any previous rounds in history. The underlying logic of the RMB appreciation in this round includes the increasing demand for foreign exchange settlement after the continuous improvement of Chinese companies' ability to earn money overseas, the global distrust of the US dollar and the demand for physical assets backing the currency, as well as China's top-level design of external "taxation" subsidies to boost domestic demand. Factors such as the trend of the US dollar, the change of the Federal Reserve chairman, and the flow of foreign capital will not completely reverse the appreciation trend. Looking at the seven rounds of RMB appreciation cycles in the past 20 years, exchange rates are not the decisive factor in industry allocation. However, in the early stages of forming a sustained appreciation expectation or when exchange rates touch key levels, market trading may replicate muscle memory. Additionally, from a cost-income analysis perspective, approximately 19% of industries will experience profit margin enhancement due to the appreciation, and enterprises speeding up their capacity to go overseas will be less affected by the negative impact of RMB appreciation on profitability. Furthermore, policy responses to suppress rapid unilateral appreciation trends, such as monetary easing or moderate relaxation of restrictions on foreign financial investment, are actually more important factors affecting industry allocation. The unique underlying logic of appreciation, different from history, means that allocation strategies will differ from historical experiences. It is recommended to focus on three clues: short-term muscle memory driving, profit margin change driving, and policy change driving.