Structural Impact of RMB Breaking 7 on China's Stock Market

Since 2024, the RMB exchange rate has continued to depreciate, and broke 7 again at the end of 2025, exceeding investors’ psychological and policy-sensitive thresholds. The market generally believes that this round of depreciation reflects changes in the US dollar’s weakness and Sino-US interest rate differentials, as well as China’s efforts to boost exports and stabilize foreign exchange reserves. A weaker exchange rate has two-way impacts on asset valuation and capital flow: on one hand, it enhances the relative attractiveness of RMB-denominated assets; on the other hand, it increases cross-border exchange costs and intensifies foreign exchange hedging pressure for foreign capital [1].

• Valuation Repricing
  : RMB depreciation compresses the profit expectations of “foreign currency-denominated” earnings in the short term, especially the gross profit from exports of listed companies is denominated in US dollars, which becomes higher when converted back to RMB, helping to offset the problem of weak domestic demand; however, for enterprises highly dependent on import costs, gross profit margins may be eroded.
• Capital Flow
  : RMB depreciation increases the exchange loss for overseas institutions holding A-shares or Hong Kong stocks. If the exchange difference continues to expand, it may generate short-term foreign capital outflow pressure; conversely, once the expectation of RMB appreciation is rebuilt, it will help attract capital with the combination of “RMB assets + yield” [1].
• Policy Margin
  : The People’s Bank of China will guide through the central parity rate and market intervention to “stabilize sentiment” during periods of rapid appreciation or depreciation of the exchange rate. Currently, the central bank has indicated that it does not want the exchange rate to “rise too fast”, indicating that it still intends to maintain a certain degree of flexibility and a controllable fluctuation range [3].

In the RMB depreciation logic, judgment can be made from two dimensions: “US dollar settlement/overseas income” and “import cost”:

Logic	Typical Beneficial Industries/Sectors	Main Drivers
Export Competitive Advantage Enhancement	Electronic Manufacturing, Communication Equipment, Machinery, Textile and Apparel, Home Appliances, Auto Parts	When US dollar income is converted into RMB, profit margins increase, and at the same time, pricing in overseas markets is more flexible, especially mid-to-high-end manufacturing is gradually shifting to an “export + high value-added” structure [1].
External Demand Relatively Stable/Price More Flexible	Commodities (e.g., Chemicals, Fine Chemicals), Industrial Equipment	Driven by the exchange rate, domestic currency costs are lower than global peers, helping to compete for price-sensitive orders.
RMB Asset Attractiveness	Treasury Bonds, Financial Real Estate and other RMB Assets	RMB depreciation makes foreign investors holding RMB assets need to additionally replenish risk premiums. If policies stabilize, the combination of “yield + exchange difference” can be used to attract long-term capital [1].

Logic	Typical Vulnerable Industries/Sectors	Main Pressures
Rising Import Costs	Aviation (Fuel Items), Energy Chemicals (Crude Oil/Natural Gas denominated in US dollars), Semiconductors/High-end Equipment	Procurement of these industries is almost denominated in US dollars, and RMB depreciation directly amplifies cash flow gaps and gross profit compression.
Consumer Durables (Including Import Dependence)	Medical Devices, Luxury Goods, Some High-end Consumer Electronics	Due to the passive increase in procurement costs, if it cannot be passed on through selling prices, it will drag down profit margins; at the same time, the rise in inflation expectations also has a negative impact on terminal demand.
Heavy Capital Expenditure, Need for Cross-border Financing	New Energy Vehicle Parts, Aviation Manufacturing, Maritime Transport	If RMB depreciation continues, the financing cost of new foreign currency debt will rise, affecting project returns.

• Select Export Elasticity
  : Focus on export leaders with a “high proportion of US dollars in product structure + negotiable prices” (such as industrial robots, precision equipment, semiconductor manufacturing services), which have “natural hedging” capabilities in exchange rate fluctuations.
• Avoid High Import Dependence
  : Avoid enterprises with “US dollar procurement + low supply and demand elasticity” (such as consumer electronics assemblers purely dependent on imported parts), or observe whether they have established a hedging mechanism.
• Utilize Policy Windows
  : Pay close attention to the deviation signals of the People’s Bank of China in the exchange rate central parity rate and changes in foreign exchange holdings. Once the policy emphasizes “preventing excessive depreciation”, it may open a stable period for the RMB, and then you can gradually increase positions in Hong Kong stocks or A-shares that benefit from the “exchange rate recovery” logic.
• Risk Hedging
  : Hedge the export/import exposure of existing positions through forward foreign exchange settlement and sales, foreign exchange options or structured products, especially the cross-border returns of foreign institutions in the Hong Kong Stock Connect or Interconnection channels.
• Sentiment and Expectation Management
  : The RMB breaking 7 may increase market volatility. Prepare a more flexible stop-loss band, and use policy information (such as the Fourth Plenary Session’s statement on the financial market) to judge whether it is in the “policy tolerance window”.

The RMB breaking 7 is the result of the combined effect of Sino-US interest rate differentials, US dollar weakness, and changes in domestic supply structure, which constitutes a “selective overweight” opportunity for A-share investment. It is recommended to take “export elasticity + policy sensitivity” as the main line, focus on allocating manufacturing and technology industries with exchange rate elasticity and reasonable valuation, and reduce direct dependence on imports. When necessary, use foreign exchange derivatives to reduce the risk of exchange rate fluctuations transmitting to profits, and maintain sensitivity to the central bank’s attitude of strengthening exchange rate elasticity and stabilizing market expectations.

For further analysis of specific industries (such as new energy vehicles, computer hardware, air transportation) or quantitative valuation impacts, you can consider enabling the “in-depth research mode” to obtain more detailed broker database support.

[1] Yahoo Finance Hong Kong - “What is the impact of the RMB ‘breaking 7’? How will the market go next?” (https://hk.finance.yahoo.com/news/時隔15月再見6字頭-人民幣-破7-有何影響-後市怎麼走-230007748.html)
[2] Yahoo Finance Hong Kong - “The upward trend continues! Offshore RMB against the US dollar breaks above the 7.0 mark” (https://hk.finance.yahoo.com/news/漲勢延續-離岸人民幣公美元升破7-0大關-031600215.html)
[3] Yahoo Finance Hong Kong - “The deviation of the RMB central parity rate hits a 6-year high, the People’s Bank of China releases a signal to slow down the appreciation of the RMB” (https://hk.finance.yahoo.com/news/人民幣中間價偏離度創6年新高-中國人行釋出減緩人民幣升值訊號-123006412.html)