UBS Global Wealth Management has revised its outlook for Chinese stocks due to concerns over potential U.S. tariffs and disappointing economic stimulus measures from Beijing.
The mid-2025 target for the MSCI China Index has been lowered from 76 to 67, and the end-2025 target from 79 to 74. This adjustment comes as a result of "tariff-induced volatility and stimulus disappointments," which have dampened global investors' expectations of a strong response from China.
The MSCI China Index, which includes around 700 Chinese stocks traded onshore and abroad, experienced a rise from 54 in mid-September to a peak of 76 in early October, but has since fallen back to 67. This downgrade by UBS is the first major adjustment in outlook on Chinese equities, signaling a shift in sentiment as the market faces external pressures and internal economic challenges.
The potential re-election of Donald Trump as U.S. president has raised concerns about the imposition of new tariffs, including a possible 10% to 20% on all imports and a steeper 60% on goods specifically from China. This has led to increased anxiety among investors, as Trump's administration is expected to take a more aggressive stance towards China. Analysts believe that the prevailing pessimism surrounding U.S.-China relations will have a lasting impact on the stock market. The uncertain trade relations are compounded by the struggling Chinese economy.
In response to the sluggish economy, the Chinese government unveiled a 10 trillion yuan economic package aimed at addressing local government debt through public bond issuance. However, many analysts are disappointed with the measures, arguing that they do not adequately support consumer spending or restore confidence in the property sector. The property market, a significant contributor to China's GDP, is currently facing a downturn that raises concerns about its long-term viability.
The recent developments in U.S.-China relations and the lackluster response from the Chinese government to economic challenges have created a complex landscape for investors. The combination of tariff threats and insufficient stimulus measures has led to a decline in market confidence, with many investors reassessing their positions in Chinese equities. The volatility in the stock market reflects broader concerns about the sustainability of China's economic recovery.
As global investors seek stability, the performance of the MSCI China Index will be closely monitored. The index's recent fluctuations highlight the delicate balance between external pressures and internal economic policies. With the potential for further tariff escalations and ongoing uncertainties in the property market, the outlook for Chinese stocks remains uncertain. Financial institutions and analysts will continue to scrutinize the actions of both the Chinese government and the U.S. administration, as the interplay between these two economic powerhouses will shape market dynamics and influence investor sentiment in the coming months.