Recent developments in the trade relationship between the U.S. and China have led Nomura Holdings Inc. to shift its outlook on Chinese stocks, upgrading them to a “tactical overweight.” This strategic move signals optimism among investors, as the easing of trade tensions is expected to bolster China’s equity market significantly. The analysts, led by Chetan Seth, noted that the latest trade agreements could help diminish the geopolitical risk premium that has long haunted Chinese stocks.

Positive Trade Developments Boost Market Sentiment

The change in Nomura’s assessment comes in light of encouraging discussions over the weekend that yielded better-than-anticipated outcomes. As part of the agreement, the U.S. government plans to cut tariffs on a majority of Chinese imports to 30% for 90 days, while China will reduce its tariffs on U.S. goods to 10%. President Donald Trump also indicated that China has committed to eliminating certain non-tariff barriers, further improving the trade landscape.

• U.S. Tariffs: Reduced to 30% for 90 days
• China Tariffs: Dropped to 10%
• Trump’s Statement: China to remove non-tariff barriers

Market Reactions and Future Projections

The agreement has lifted some weight off the market, leading analysts to express growing optimism about increased inflows into Chinese shares. Leading up to the negotiations, local markets had already shown a positive trend, boosted by a recent interest rate cut and assurances from policymakers to support the “stock stabilization fund.”

However, the Chinese onshore benchmark index experienced a slight dip, paring its gains of up to 0.6%, as the reduction in tariffs tempered expectations for extensive stimulus measures from China. Similarly, a gauge of Chinese shares listed in Hong Kong saw a decline of 1.8% on Tuesday.

Currency Gains Amidst Trade Optimism

In more encouraging news, the yuan soared to a six-month high in both onshore and offshore markets on Tuesday, following the People’s Bank of China setting a stronger currency fixing above the 7.2 per dollar mark. This shows increased confidence in the Chinese economy as trade tensions ease.

Shifting Focus: India vs. China Investments

In a strategic pivot, Nomura has downgraded its overweight stance on Indian stocks to fund its upgrade of Chinese equities. This reflects the first significant upgrade of China’s allocation by analysts since the two economic giants agreed to a temporary pause in their trade conflict.

The strategists pointed out that maintaining overweight positions in both India and China offers investors a natural hedge against potential trade-related volatility. They emphasized that while the market had anticipated some tariff reductions, the actual outcomes exceeded expectations, providing substantial relief for global stocks.

• Nomura’s Strategy: Downgraded India to support China allocation
• Investor Hedge: Balancing positions in India and China

This optimistic landscape sets the stage for potential growth in Asian equity markets, as investors recalibrate their strategies in response to the evolving trade dynamics between the U.S. and China.