The impact of exchange rate on the securities market:

The impact of exchange rate on the securities market is multi-faceted. Generally speaking, the more open a country’s economy is, the more international the securities market will be. The higher the value, the greater the impact of the securities market exchange rate. The remittance here is expressed by the domestic currency value of the unit of foreign currency.

1. When the exchange rate rises and the local currency depreciates, domestic products become more competitive and export-oriented companies will benefit, so their stock prices will rise; on the contrary, companies that rely on imports will increase their costs, suffer profit losses, and stock prices will rise. Prices will fall.

2. The rise in the exchange rate and the depreciation of the local currency will cause capital to flow out of the country. The loss of capital will reduce the demand for the domestic securities market, resulting in a fall in market prices.

3. The exchange rate rises, the local currency depreciates, and the price of imported goods expressed in the local currency increases, which in turn drives up the domestic price level and causes inflation.

As the exchange rate rises, in order to maintain exchange rate stability, the government may use foreign exchange reserves and sell foreign exchange, which will reduce the supply of domestic currency and cause securities market prices to continue to fall until the exchange rate level falls back to equilibrium. The negative effect may make Security prices recover.

When the exchange rate rises, the government may use the bond market and the foreign exchange market to control the rise in the exchange rate and reduce the money supply, that is, sell foreign exchange and repurchase government bonds at the same time, which will cause the market price of government bonds to rise.

From the above theory, it can be seen that when the local currency appreciates, it is good for the securities market, and when the local currency depreciates, it is bad for the securities market. Combined with the current situation of the RMB exchange rate, the exchange rate factor should be negative for the securities market.