China’s surprise deal with the US triggers positive growth outlook from investment banks

China’s surprise deal with the US, announced on Monday, has prompted investment banks and other financial institutions to raise the country’s growth forecast for 2025. The agreed deal cuts China’s reciprocal tariffs from 125% to 10% for 90 days and the US from 145% to 30%. 

On Monday, the Union Bank of Switzerland (UBS) predicted that the Chinese GDP growth may grow between 3.7% and 4%. The previous base was 3.4% before the de-escalation of the trade war. UBS believes ending the trade war would have a minor impact on the growth of Asia’s largest economy.

Asian market equities rally after truce in US-China trade war

Equities on Asian markets jumped sharply on Tuesday, May 13, after the United States and China agreed to pause their trade war for 90 days. Japan’s Nikkei jumped 2%, marking its first high since February.  

The S&P 500 rallied by over 3% on the US markets, and the Nasdaq advanced by 4.3%, driven by gains from technology and consumer stocks. The pause of the US-China trade war on Monday triggered these rallies. 

The US reduced its baseline from 145% to 30%, and China’s reciprocal baseline cut from 125% to 10%.  A separate White House order also cut the minimum tariff on imports from China from 120% to 54% while maintaining a $100 flat fee.

The Chinese CSI 300 maintained highs after a surprise rally of 1.6% in the previous session. The Hang Seng Index rose as high as 3% and dropped by 1.5% on Tuesday. Some observers have cautioned against getting carried away by the bounce in equities. 

Dan Wang, Eurasia’s China director, said this doesn’t change the bigger picture. He believes the Chinese stock market still depends on weak domestic fundamentals.  

Investment firms revise Chinese economic growth outlook.

Global banks like UBS have revised their growth forecast for the Chinese equity market. Morgan Stanley has also reviewed its near-term quarterly China GDP outlook, focusing on the view that companies may try to speed up exports to take advantage of the lower tariffs.  

China Economist and Morgan Stanley’s bank chief Robin Xing wrote that the suspension window could lead to front-loaded shipments and production while tariffs remain elevated. The investment bank analyst revealed that second-quarter GDP could be higher than the current estimate of 4.5%.

Xing and his team expect the third quarter results to show resistance, forecasting it at 4%.

ANZ bank revised its forecast, seeing China’s GDP grow to 4.2% in 2025. The Australian bank revised the forecast from 4.8% to 4.2% in April this year. Goldman Sachs lifted the 2024 GDP forecast to 4.6% from the previous 4%. 

Natixis reviewed its forecast from the base of 4.2% up to 4.5%, saying that this is possible with more proactive stimulus and further reduction in tariffs. Nomura, Japan’s investment bank, upgraded Chinese equities, which were described as “tactically overweight,” and shifted some of its allocation from India to China.

Citi, a New York investment bank, raised its target for the Hang Seng Index of Hong Kong to 25,000 by the end of 2025 with a forecast of 26,000 by mid-2026. Pierre Lau, a Citi strategist, said that while remaining cautious on exports, preference should be given to domestic-facing sectors such as consumer and technology. 

Kai Wang of Morningstar said the current recovery may come faster than the previous trade cycles, which led markets to bounce back within a month of tariff relief. Wang quoted Baidu, Tencent, and NetEase as the most attractive stocks in China’s communication sector.  

Citibank also preferred Hong Kong-listed H-shares over mainland A-shares, expecting US rate cuts to support the Hong Kong dollar.

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