Nomura turns bullish on China’s stocks after trade truce with US

Nomura Holdings Inc. strategists upgraded Chinese stocks to a ‘tactical overweight,’ saying the trade truce between the US and China is a significant positive for the Asian nation’s equities.

The agreement to temporarily lower tariffs “came as a significant surprise for markets, and will likely support risk positivity in the near term,” strategists led by Chetan Seth wrote in a note Tuesday. That would extend a relief rally seen in Chinese stocks in the past month, they added.

The change in Nomura’s stance from neutral follows the better-than-expected outcome from the US-China talks over the weekend, which led to a de-escalation of trade tensions. The US on Monday said it would reduce levies on most Chinese imports to 30% from 145% for 90 days, while China’s 125% duties on US goods will drop to 10%. President Donald Trump also said Asia’s largest economy has agreed to remove non-tariff barriers on imports.
The deal removes an overhang and analysts are becoming increasingly optimistic that the trade truce will help drive more inflows into Chinese shares. Local markets had been on a positive path leading up to the talks over the weekend, with shares getting an earlier boost from an interest rate cut last week and policymakers’ pledge to support efforts by the so-called “stock stabilization fund.”

Nomura trimmed its overweight stance on India to fund the China upgrade. It is the first major upgrade of China allocation by strategists since the world’s two largest economies agreed to a temporary reprieve in their trade war.