UBS Global Wealth Management (the world’s largest wealth management company with US$6.2 trillion of assets under management) has cut its forecasts for Chinese equities because of rising concerns about potential US tariffs, and a disappointing response to the domestic stimulus.
The Swiss institution reduced its target for mid-2025 for the MSCI China Index (which tracks about 700 onshore and offshore Chinese stocks) from 76 to 67.
It also lowered the target for end-2025 to 74 from its previous 79.
UBS, according to The South China Morning Post, stated that “Tariff-induced volatile and stimulus disappointments dampen global investor sentiment”, in a report published on Monday.
MSCI China Index drops as sentiment shifts
After a period in which the MSCI China Index grew, fueled by a series measures designed to stabilize the Chinese economy, it has now retraced those gains and is down to 67 on Tuesday.
The initial rally, which was sparked by optimism about new policy measures, faded when stimulus measures failed investors’ expectations.
The potential shift in US/China relations is likely to exacerbate these problems.
Trump’s reelection and his proposed tariffs of 10 to 20 percent on all imports including a 60 percent increase on Chinese products have fueled concerns about prolonged trade tensions.
This is reflected in his appointment of Marco Rubio, a known China critic, as Secretary of State and Mike Waltz as National Security Advisor, respectively.
China’s latest stimulus package fails in its mission to inspire confidence
Market analysts say that while Beijing announced a 10 trillion yuan ($1.4 trillion) debt swap package for local governments, it does not support consumption or revive the property sector.
According to Daiwa Capital Markets the absence of “substantial incremental stimulus” will “pour water on the expectations” of investors and likely trigger a pullback in the market near term.
Zhaopeng Xing is an analyst with ANZ Research. He noted that the stock market’s reaction this week reflects a long-term pessimism about China-US relations.
China’s real estate market continues to decline, and consumers are reluctant to spend.
China’s once-significant property market continues to decline, eroding confidence in the economy.
Despite government efforts to curb spending, the uncertainty about jobs and economic prospects has caused Chinese households to cut back on their spending.
Alibaba and JD.com, two of the biggest e-commerce companies in China, launched their Singles’ Day sales at the beginning of this year to pique consumer interest amid a sluggish economy.
The policy environment has overshadowed the anticipated increase in consumer stocks.
Investors are closely monitoring any changes in international trade dynamics or stimulus measures to determine the next phase of Chinese equity markets.
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