A strengthening Chinese yuan has added to a flurry of catalysts driving stocks in mainland China and Hong Kong to solid starts in 2026, with history suggesting the uptrend could hold.
The CSI 300 Index of yuan-denominated onshore equities and the Hang Seng Index have risen more than 3 per cent this year after the currency breached the key 7 per US dollar level, a point not seen in two and a half years.
Historical data indicates that a stronger yuan bodes well for Chinese stocks. HSBC Qianhai Securities found the CSI 300 rose by an average of 18 per cent during five appreciation cycles since 2017. Founder Securities reported similar trends, with the Hang Seng Index averaging 16 per cent gains during six periods of yuan strengthening over the past decade.
“Once the yuan appreciation reverses capital flows, inflows would be in trillions and that would be substantial for the revaluation of Chinese assets,” said Zhang Qiyao, an analyst at Industrial Securities. “These inflows would come from foreign funds that earlier retreated from China and foreign currencies held by Chinese companies or individuals that are yet to be converted into the yuan.”
Optimism about the resilience of China’s exports and expectations of more growth-stabilising measures from Beijing have aided the yuan rally, while the US dollar index has been languishing on bets that the Federal Reserve will make more interest-rate cuts this year to prevent the labour market from further softening. Barring the stronger yuan, Chinese stocks have also been buoyed up by undemanding valuations and Beijing’s push for technological self-sufficiency.
HSBC predicted the yuan would rise to 6.95 against the US dollar by the end of the year, while Morgan Stanley forecast a strengthening to 6.80 in 2027 on a strong external balance. Morgan Stanley expected the yuan to reach 6.85 in the first quarter before finishing the year at 7.
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