Asian equities climbed sharply on Tuesday, extending a global rally after the United States and China agreed to pause their trade war for at least 90 days.
Japan’s Nikkei jumped 2% to reach its highest level since February 25, while Taiwan’s tech-heavy index also gained 2 per cent.
Chinese shares moved higher in early trading, and the MSCI’s broadest index of Asia-Pacific shares outside Japan touched a six-month peak.
On Wall Street, the S&P 500 advanced over 3 per cent and the Nasdaq surged 4.3 per cent, driven by gains in technology and consumer stocks.
The rally followed news that the US would reduce its baseline tariff rate on most Chinese imports to 30% from 145%.
China responded by slashing its own tariffs to 10% from 125%.
A separate White House order also cut the “de minimis” tariff on shipments from China to 54% from 120%, effective May 14, while maintaining a $100 flat fee.
Firms revise outlook for China’s economy
The trade reprieve has prompted several institutions to revise their outlooks for China’s economy.
UBS said in a note that China’s GDP growth in 2025 could reach between 3.7% and 4%, up from a prior estimate of 3.4%, citing a “smaller shock” to trade-related activity.
Morgan Stanley has also upgraded its near-term GDP forecasts for China.
The bank expects second-quarter growth to exceed its current 4.5% projection, driven by front-loaded exports as companies look to benefit from the reduced tariffs.
Third-quarter growth could also display temporary resilience, now expected to come in above 4%.
Nomura has upgraded Chinese equities to “tactical Overweight” and shifted some of its allocation from India into China.
Citi, meanwhile, lifted its target for the Hang Seng Index to 25,000 by year-end, with a forecast of 26,000 by mid-2026.
Baidu, Tencent, TSMC among technology, consumer and internet stocks in focus
The sectors expected to benefit the most from the trade truce include technology, consumer, and communication services, according to several analysts.
Citi strategist Pierre Lau, while remaining cautious on exporters, also prefers domestic-facing sectors, especially consumer and technology.
Morningstar’s Kai Wang said the current recovery may come faster than the last trade war cycle, which saw markets bounce back within a month of tariff relief.
Wang cited Baidu, Tencent and NetEase as attractive picks in China’s communication services sector.
Baidu and Tencent stand out for their investment in artificial intelligence, while NetEase offers exposure to the growing domestic gaming market.
He also highlighted TSMC as a key beneficiary due to its dominant position in advanced semiconductor manufacturing.
Citi Research flagged sectors highly sensitive to tariff changes, including communications infrastructure, tech hardware, and solar equipment.
Companies such as Innolight, JCET, Eoptolink, TFC Optical and JA Solar generate a large portion of their revenues from the US, making them likely beneficiaries of easing trade friction.
Citi is overweight on internet, technology, and consumer sectors, with top picks including Tencent, BYD, AIA, Huaneng Power, Atour and Anta.
The bank also prefers Hong Kong-listed H-shares over mainland A-shares, expecting US rate cuts to support the Hong Kong dollar.
Citi also upgraded PDD Holdings to “Buy,” viewing the trade truce as a boost for its Temu cross-border platform.
The firm expects improved profits in the second quarter as sellers benefit from preloaded inventory and better pricing leverage.
ETFs offer exposure, with caveats
Investors seeking broader exposure to Chinese markets without taking single-stock risk may consider exchange-traded funds such as the KraneShares CSI China Internet ETF (KWEB), iShares China Large-Cap ETF (FXI), and Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR).
However, analysts caution that these funds are prone to sharp price swings, reflecting the volatile nature of Chinese equities.
William Ma, chief investment officer of GROW Investment Group, said the rebound in Chinese stocks could mark the start of a sustained re-rating.
“Policy easing and targeted consumption support from Beijing could deliver an additional boost,” he said, adding that valuations remain undemanding.
Maybank’s CIO Eddy Loh echoed the view, highlighting opportunities in communication services and consumer discretionary stocks as markets reposition for a post-tariff landscape.
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