In a research note on Tuesday, Chetan Seth, a strategist at the Japanese firm, upgraded Chinese stocks to a “tactical overweight” rating from “neutral.”
“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. “Recent concerns about potentially more hawkish actions from the US aimed at delisting of Chinese ADRs should also dissipate.”
According to a recent Nomura survey, fewer than 10 per cent of respondents expected the tariff rates to drop below 34 per cent on both sides. In a 90-day reprieve, China reduced its levies on US imports to 10 per cent, while the US cut its tariffs to 30 per cent, according to a joint statement from the two countries.
“The US-China agreement on Monday where tariffs were reduced came as a significant surprise for markets,” the report said. “This reduction is much larger than expected and will bring a major relief for global stocks.”
In the wake of the trade deal’s announcement, Morgan Stanley and JPMorgan Asset Management also struck a positive tone on Chinese equities. Morgan Stanley hailed the ceasefire as a catalyst that would attract inflows and ease concerns about earnings shocks, while JPMorgan said the news would allow for a more risk-oriented attitude.
