Nomura is bullish on the Chinese stock market, and the MSCI China Index is entering a period of valuation restoration.

Nomura Holdings strategist raised the rating of Chinese stocks to "tactically overweight", stating that the temporary truce in the China-US trade war is a significant positive for the Chinese stock market. Led by Chetan Seth, the strategist wrote in a report on Tuesday, "These developments should help reduce the geopolitical risk premium associated with Chinese stocks." They added that Chinese stocks are still attractively valued, and some global investors have room to return. The shift from a "neutral" rating by Nomura comes after the unexpected easing of tensions in the China-US trade dispute following negotiations over the weekend. The US announced on Monday that it would reduce tariffs on most Chinese imports to 30% within 90 days, while China agreed to lower tariffs on US goods to 10%. President Trump also stated that China has agreed to remove non-tariff barriers to imports. The agreement removes a major uncertainty, leading analysts to believe that the trade truce will attract more funds into the Chinese stock market. Prior to the weekend negotiations, the local Chinese market had shown positive momentum, boosted by measures such as interest rate cuts by the central bank and support from decision makers like the "national team" of investors. The benchmark stock index in China gave back gains from the morning session to close nearly unchanged, as the tariff reductions dampened expectations of major stimulus measures by the Chinese government. The Hang Seng Index of Chinese stocks listed in Hong Kong fell 1.8%, partially retracing gains from Monday. Meanwhile, the onshore and offshore Chinese yuan exchange rates rose to six-month highs on Tuesday after the People's Bank of China set the yuan's midpoint stronger than 7.2 per dollar. Nomura increased its holdings in Chinese stocks by cutting its overweight position in India. This is the first significant upward adjustment to Chinese allocation by strategists since the temporary truce in the trade war between the world's two largest economies. The strategists wrote, "Having overweight positions in both India and Chinese stocks can provide Asian stock investors with a natural hedge against trade-related volatility." While the market had anticipated a tariff reduction, the actual decrease far exceeded expectations, bringing significant positives to global stock markets. According to a recent survey by Nomura, less than 10% of respondents expected tariffs to be lowered to below 34%. The strategists stated that the geopolitical risk premium between China and the US has decreased, potentially pushing the forward price-to-earnings ratio of the MSCI China Index to 13 times. Bloomberg data shows that the current forward price-to-earnings ratio of the index is 10.9 times.