^Euronews

Financial Institutions Revise China Growth Outlook Amid Trade Truce

Global investment banks are reassessing their economic outlook for China following a surprising trade agreement between Washington and Beijing. The unexpected truce has not only led to upward revisions in China’s growth forecasts but has also positively impacted stock market projections.

Trade Agreement Sparks Optimism

On Monday, the United States and China agreed to a 90-day suspension of most tariffs on each other’s products, reducing mutual tariff rates from a steep 125% to just 10%. This temporary easing marks a significant shift after years of trade disputes sparked by the U.S. imposing reciprocal tariffs on April 2, which previously caused a downturn in China’s economic projections.

The news prompted a wave of positive reactions from financial institutions. UBS, for instance, updated its GDP forecast for China in 2025, predicting growth between 3.7% and 4%, up from the previous estimate of 3.4%. UBS analysts noted that the reduced economic shock from de-escalated trade tensions could bolster economic stability.

Similarly, Morgan Stanley revised its short-term GDP outlook, anticipating a rise in China’s second-quarter growth above the previous 4.5% estimate. According to Robin Xing, Morgan Stanley’s chief China economist, companies may increase production and exports to take advantage of the tariff suspension, leading to a stronger-than-expected economic performance. The bank now forecasts third-quarter growth to exceed 4%, slightly higher than its earlier projection.

Other Banks Follow Suit

ANZ Bank, originally predicting 4.2% growth for China this year after cutting its earlier forecast of 4.8%, now expects an even stronger outcome. Likewise, Natixis adjusted its GDP forecast upward to 4.5%, from a previous 4.2%, citing potential stimulus measures and further tariff reductions as key factors.

Chinese Equities See Renewed Confidence

The improved economic outlook is also boosting investor sentiment towards Chinese stocks. Nomura has upgraded China equities to “tactical Overweight,” reallocating some funds previously invested in India. Additionally, Citi has revised its Hang Seng Index target, raising it by 2% to 25,000 by year-end and projecting it to reach 26,000 by mid-2026.

Despite the improved sentiment, Citi’s China equity strategist, Pierre Lau, remains cautious, advising investors to focus on domestic sectors less vulnerable to tariff fluctuations. He upgraded the consumer sector from neutral to overweight, citing more stability amid ongoing trade negotiations.

Maybank’s chief investment officer, Eddy Loh, also noted that despite geopolitical uncertainties, Chinese stocks present “attractive risk-reward potential” due to market valuations remaining low. He sees opportunities particularly within communication services and consumer discretionary sectors.

Sustained Market Rebound or Temporary Relief?

William Ma, CIO of GROW Investment Group, believes the rally in Chinese markets reflects a fundamental shift, driven not just by the trade truce but also by China’s recent policy easing and increased consumer spending. However, some experts urge caution.

Dan Wang, Eurasia’s China director, warned that the 90-day tariff break is not a permanent solution and does not guarantee a complete resolution of U.S.-China tensions. Despite the temporary optimism, underlying issues such as China’s struggling property sector and local government debt remain significant risks.

Natixis senior economist Gary Ng echoed similar sentiments, highlighting that the agreement is merely a pause rather than a resolution, especially considering the fragile trust between the two nations. He pointed out that the unexpected nature of the deal fueled short-term market rallies, but fundamental economic weaknesses could limit sustained growth.

Long-Term Implications

While the trade deal has undoubtedly sparked short-term optimism, the longevity of this positive sentiment remains in question. Experts caution that the truce might only serve as a temporary reprieve rather than a comprehensive breakthrough. As political dynamics evolve, market stability will largely depend on domestic economic reforms and global trade developments.

As of now, the Chinese stock market shows mixed reactions. The CSI 300 rose modestly on Tuesday after a 1.6% gain the previous day, while the Hang Seng Index surged nearly 3% on Monday before declining by 1.5% on Tuesday. Analysts remain cautiously optimistic but acknowledge that geopolitical risks still loom large.

‍

The recent U.S.-China trade deal has provided a breath of fresh air for China’s economic outlook, with investment banks adjusting their growth projections upward. However, while the temporary tariff reduction has boosted confidence, the underlying challenges and uncertainties surrounding the bilateral relationship persist. Investors and policymakers will need to remain vigilant, balancing short-term gains with long-term strategic planning.

‍