Global banks are revising their forecasts for China’s economic growth following a recent thaw in trade relations between Washington and Beijing.
Revised GDP Estimates
- UBS has increased its estimate for China’s GDP growth in 2025 to a range of 3.7% to 4%, up from its previous base case of 3.4%.
- Morgan Stanley has also adjusted its near-term GDP forecasts, although specific details were not provided.
Investment Sentiment
The improved trade relations between the US and China have led some investment strategists to become more bullish on Chinese stocks.
- Eddy Loh, Maybank’s chief investment officer, stated that he sees "attractive risk reward" in Chinese stocks, as market valuation remains undemanding.
However, not all experts share this optimism. Some have expressed concerns that the recent deal may only provide a temporary reprieve from trade tensions rather than a significant breakthrough.
- Citi’s China equity strategist Pierre Lau prefers domestic plays that avoid tariff uncertainties, emphasizing: "We prefer domestic plays that avoid tariff uncertainties."
Impact on Emerging Markets
The improvement in US-China ties is expected to boost investor sentiment towards emerging markets and Asia ex-Japan equities this year, according to analysts at Citi Research.
- UBS economists expect global trade volumes to increase by around 2% this year compared to last year, mainly due to improved US-China relations and better-than-expected demand from Europe and Japan.
- China is likely to be one of the key beneficiaries of these trends, accounting for around half of global exports among emerging markets outside Asia ex-Japan equities.
Sector Performance Expectations
In terms of sector performance within emerging markets outside Asia ex-Japan equities (EMXJ), Citi Research expects:
- Consumer staples companies such as Unilever (ULVR) will outperform.
- Technology companies like Tencent Holdings (0700.HK) may underperform due to higher tariffs on exports into countries like India or Indonesia unless they establish local production facilities.
Short-Term Volatility and Recommendations
While there may be some short-term volatility ahead, largely because investors tend to overreact to quickly changing news, analysts at Citi Research believe EMXJ should continue benefiting from improving global demand trends driven by better-than-expected European demand.
- They see attractive risk-reward in EMXJ, expecting earnings momentum to improve over time.
Stock Recommendations
Citi Research recommends buying shares of:
- Nestle SA (NESN.S): Offers exposure through direct sales into Europe and third-party distributors into other regions.
- Unilever PLC (ULVR.L): Similar exposure as Nestle.
- Coca-Cola Co (KO.N): Additional recommendation based on various financial metrics.
These recommendations are based on factors including:
- Earnings momentum
- Valuations
- Dividend yield
- Return on equity
- Debt-to-equity ratio
- Price-to-earnings ratio
Overall, the outlook for China’s economic growth and its impact on global markets remains cautiously optimistic, with a focus on domestic plays and consumer staples in the face of ongoing trade uncertainties.
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