BofA update shows where active managers are putting money
Investing.com - The outlook for both onshore and offshore Chinese stocks is "weak," as the full impact of U.S. tariffs on the world’s second-biggest economy has yet to be realized, according to analysts at BCA Research.
In a note to clients, the BCA Research analysts said that, since the beginning of this year, both onshore and offshore Chinese equities have outpaced their global counterparts, thanks in large part to relative multiple expansions that have helped to paper over tepid earnings.
But without the support from corporate profits, this valuation-driven rally could be "vulnerable to reversal," especially as China’s domestic economy has largely failed to stage a recovery from a period of recently muted growth fueled by weak consumer consumption and a protracted property crisis, the analysts said.
Meanwhile, potential trade-related headwinds are looming, they added.
At the moment, U.S. tariffs on imported Chinese goods now stands at 30% following a 90-day trade truce reached between the world’s two largest economies earlier this year. The two had previously been conducting an escalating tit-for-tat tariff war that threatened to leave levies on both countries in the triple digits -- possibly threatening global activity in the process.
Washington and Beijing’s trade detente is set to expire on August 12, although U.S. Commerce Secretary Howard Lutnick has suggested that it would likely be extended by further 90 days. Still, Lutnick has refused to dismiss the chance of more tariffs on China being introduced, particularly as the White House ratchets up its scrutiny of countries -- such as India -- which buy oil from Russia.
The lagged impact of already-heightened tariffs may also soon emerge in Chinese exports, the BCA analysts predicted. With this in mind, they argued that Chinese officials should be instituting more near-term stimulus policies to prop up the economy or risk credit and fiscal impuleses "losing steam" over the rest of 2025.
"Global trade is about to contract, and Chinese policymakers remain behind the curve on stimulus," the analysts wrote.
Against this backdrop, the analysts said solely valuation-fueled outperformance "does not make Chinese stocks an attractive investment proposition for global investors."