01, Renminbi Soars

After 13:35 Beijing time this afternoon, both the onshore and offshore exchange rates of the renminbi experienced a sudden and significant increase.

In the offshore exchange market, the renminbi's exchange rate has risen by as much as 800 points today. Up to now, today's increase has completely offset yesterday's decline.

Recently, the renminbi's exchange rate against the US dollar has shifted from a one-way depreciation to a clear two-way fluctuation.

During last Tuesday's trading session, the renminbi had depreciated to a low of 7.37 at one point, but then it rebounded strongly. On Wednesday, it surged dramatically, gaining more than 1,200 points.

However, from last Thursday to yesterday, the renminbi's offshore exchange rate fell for three consecutive days, dropping by 600 points, 190 points, and 660 points respectively. With the Federal Reserve about to announce its latest interest rate decision, there was widespread concern that the renminbi would continue to depreciate further.

But today, the renminbi has been continuously rising.

02, Continuous Inflow of Funds

In addition to the rise of the renminbi, there are several data indicators that require our attention.

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Today, the northbound capital in A-shares reversed the outflow of the previous two days, and as of now, the net inflow for today has exceeded 5.1 billion yuan.In the A-share market, major indices have also been on the rise.

The Shanghai Composite Index has risen by 2%, reclaiming the 2,900-point mark today, currently at 2,950 points, and is advancing towards the 3,000-point milestone. The ChiNext Index and the CSI 300 Index have both seen gains exceeding 2.5%.

The Hong Kong stock market has seen even more significant gains, with the Hang Seng Index astonishingly rising by 5%, and the Hang Seng Tech Index currently up by 7.7%.

The FTSE China A50 Index, traded in the Singapore market, has also seen gains exceeding 4%.

All of the above data point to the same fact: Chinese yuan-denominated assets are being aggressively purchased.

03, The yuan's appreciation is even greater

Some investors might think that the decline in the US dollar index today is the only reason or the key reason for the yuan's appreciation. However, I believe this is just one of the reasons.

The real key lies in the fact that at this moment, international capital has a very strong demand for yuan-denominated assets.

As can be seen from the chart above, the US dollar index fell by 0.5% today, but the yuan's appreciation reached 0.7%. This shows that the yuan's appreciation is far greater than the decline in the US dollar index.

If we look at the appreciation from the beginning of the year to now, it is even more apparent.So far, the US Dollar Index has risen by 16% this year, while the Chinese Yuan has only depreciated by 14%.

04, Safety

Why is it said that foreign capital currently has a more urgent demand for Chinese Yuan assets?

Firstly, from a safety perspective, looking around the global financial market, it is almost impossible to find other safe assets at present.

As the world's largest stock and bond markets, the United States carries a greater risk.

The US stock market has experienced a deep decline since the beginning of the year, with the Nasdaq Index still down by 30% so far.

The decline in US bonds is even comparable to the decline in stocks of many countries. The drop in ten-year US Treasury bonds this year has exceeded 15%. With bonds falling to the level of stocks, many institutions have been forced to sell US bonds.

Some time ago, the Singaporean sovereign wealth fund publicly stated that it would focus on China as an investment priority, because in the current global market, China is a rare safe haven.

05, Returns

Secondly, from the perspective of returns, buying Chinese Yuan assets at this moment will yield more considerable returns.Here, we can perform a simple calculation.

If a foreign institution currently brings in $1 billion into the A-share market, it will gain profits from two aspects in the future.

Firstly, $1 billion can be exchanged into 7.2 billion yuan at the current exchange rate, and after buying A-shares, the future rise in the A-share market will be accompanied by an appreciation of the exchange rate.

Assuming the A-share market rises by 10%, 7.2 billion will become 7.92 billion.

At the same time, due to the peak of the US dollar and the continued significant appreciation of the yuan, even if it does not return to the high point at the beginning of the year, it only appreciates by half to 6.5.

After converting 7.92 billion yuan into US dollars, it will also increase in value to $1.22 billion.

Even without considering leverage, the principal of $1 billion will achieve a 22% return on investment, which is an irresistible temptation for foreign capital from any perspective.

That's why we see this phenomenon. This round of depreciation started in mid-August, but in September, there were still four new foreign institutions entering our country's bond market.

Similarly, in September, when the yuan continued to depreciate, the amount of foreign exchange settlement by our country's banks was still far greater than the amount of foreign exchange sales.

It can be seen that whether it is the number of foreign institutions or the total amount of funds, the investment strength of foreign capital in yuan-denominated assets is increasing.