UBS cuts forecast for China stocks amid potential US tariffs and weak stimulus

UBS Global Wealth Management, the world’s largest wealth manager with US$6.2 trillion in assets under management, has cut its forecast for Chinese equities due to rising concerns over potential US tariffs and a disappointing domestic stimulus-response.

The Swiss institution revised its mid-2025 target for the MSCI China Index, which tracks approximately 700 onshore and overseas Chinese stocks, down to 67 from 76.

It also lowered its end-2025 target to 74 from 79.

“Tariff-induced volatility and stimulus disappointments are dampening global investor sentiment, especially as former President Donald Trump’s return raises geopolitical stakes,” UBS stated in a report released on Monday, as reported by The South China Morning Post.

MSCI China Index dips as sentiment shifts

After a period of gains fuelled by a series of measures aimed at stabilizing the Chinese economy, the MSCI China Index, which peaked at 76 in early October, has retraced its gains, falling back to 67 as of Tuesday.

The initial rally, sparked by optimism over new policy moves, faded as stimulus measures failed to meet investor expectations.

Adding to these woes is the potential shift in US-China relations.

Trump’s re-election and proposed 10 to 20% tariffs on all imports, including a 60% increase on Chinese goods, have fuelled concerns over prolonged trade tensions.

His appointment of known China critics, Marco Rubio and Mike Waltz, as secretary of state and national security adviser, respectively, underscores this trajectory.

China’s latest stimulus package fails to inspire confidence

While Beijing announced a significant 10 trillion yuan (US$1.4 trillion) debt-swap package for local governments, market analysts argue it falls short of supporting consumption or reviving the beleaguered property sector.

According to Daiwa Capital Markets, the absence of substantial, “incremental stimulus” will “pour cold water” on investor expectations and likely trigger a market pullback in the near term.

“The stock market’s response this week underscores long-term pessimism over China-US relations,” noted Zhaopeng Xing, an analyst at ANZ Research.

China’s property market remains down, consumers withhold spending

China’s property market, once a significant growth driver, continues to slump, eroding economic confidence.

Despite government efforts, uncertainty surrounding jobs and economic prospects is causing Chinese households to curtail spending.

E-commerce giants like Alibaba and JD.com have launched Singles’ Day sales early this year, seeking to spark consumer interest amid subdued economic conditions.

However, the anticipated boost to consumer stocks has been overshadowed by broader concerns over the policy environment.

The next phase for Chinese equities remains uncertain, with investors closely watching for any change in stimulus or international trade dynamics.