Nomura Holdings has become the first major global investment bank to upgrade its outlook on Chinese equities following a surprising development in US-China trade relations. In a research note released Tuesday, strategist Chetan Seth announced that the firm has raised its rating on China stocks to “tactical overweight” from “neutral,” citing reduced geopolitical tensions and a more optimistic investment environment.
The move comes on the heels of a joint announcement from Beijing and Washington indicating a temporary agreement to significantly lower tariffs on each other’s imports. Under the 90-day reprieve, China has cut its tariffs on US goods to 10 per cent, while the United States has lowered its levies on Chinese imports to 30 per cent. This unexpected level of cooperation has come as a surprise to markets, which had not anticipated such substantial easing of trade barriers.
Nomura’s note suggests that this sudden improvement in bilateral relations has the potential to ease the geopolitical risk premium that has long weighed on Chinese equities. “While there are still some uncertainties on the medium-term US-China outlook, we think these developments should reduce the US-China geopolitical risk premium that has been associated with China stocks,” the report said. It also addressed another key concern for investors — the potential for stricter US actions on the delisting of Chinese American Depositary Receipts (ADRs). According to Nomura, these fears are now likely to subside.
A recent survey conducted by the bank found that less than 10 per cent of respondents had anticipated tariff rates to drop below 34 per cent for both nations. The actual reductions, therefore, far exceeded expectations and have been interpreted as a major relief for global financial markets. “The US-China agreement on Monday where tariffs were reduced came as a significant surprise for markets,” the note emphasized. “This reduction is much larger than expected and will bring a major relief for global stocks.”
Other investment firms also echoed this positive outlook. Morgan Stanley described the tariff reprieve as a critical catalyst for renewed capital inflows into Chinese assets, while JPMorgan Asset Management said the deal could encourage a more risk-on investment strategy moving forward. The consensus signals a shifting sentiment in favor of Chinese equities as tensions ease, at least temporarily.
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