Nomura: Maintains a strategic overweight view on Chinese stocks, optimistic about semiconductor and AI stocks

According to the Zhitong Finance APP, Nomura has raised its target prices for the MSCI Asia Pacific Ex-Japan Index and the MSCI China Index. Under the base case scenario, Nomura's target for the MSCI Asia Pacific Ex-Japan Index by the end of this year is 816 points, up 5.7% from the previous 772 points, with a target of 901 points by the end of next year. The latest target prices for the MSCI China Index are 80 points for the end of this year and 90 points for the end of next year. However, the bank expects a slight decline in the index from now until the end of 2025, but in the medium term, considering the positive earnings growth next year, there are still opportunities for an increase. Nomura believes that valuations in Asia are too high but have not yet reached bubble levels. The bank pointed out that there are many positive developments in the market, including (1) a significant reduction in overall tariff risks, with increasing certainty in U.S. trade policies; (2) stable U.S.-China relations, which is considered a major positive, leading the market to reassess the risk premium of mainland and Hong Kong stocks; (3) continued rise in artificial intelligence and technology themes; (4) expectations for interest rate cuts by the Federal Reserve have become a foregone conclusion, despite a weak labor market, with the market expecting the U.S. economy to avoid a full-blown recession. The bank believes that any productivity improvements and cost reductions brought about by the AI revolution could be beneficial for corporate earnings, even if this is negative for the labor market; (5) South Korea's value enhancement plan is expected to make progress, leading to a reassessment of ratings. Regarding the mainland and Hong Kong stock markets, Nomura acknowledges that the macroeconomic situation in the mainland remains challenging, with continuous declines in corporate earnings. However, the bank believes that the rise in the mainland and Hong Kong stock markets is driven by the relatively stable U.S.-China relations, and given that the MSCI China Index includes some of the world's most innovative companies, it predicts that even at the peak of pessimism, the forecasted price-to-earnings ratio for the MSCI China Index should not reach 8 to 9 times. The bank believes that liquidity has never been an issue for China, as there is ample savings in the mainland, and local and foreign capital allocations to Chinese stocks remain low. Due to policy changes and a reassessment of risk premiums, off-market liquidity is beginning to flow, with the market shifting from a buyers' strike to buyers being abundant. Nomura believes that the valuation of offshore Chinese stocks is reasonable. The optimistic market sentiment currently does not require immediate stimulus measures or aggressive monetary policy support to avoid creating a bubble, but the bank also states that we are still far from a bubble, and this does not mean that supportive policies are being reversed. Looking ahead, the development of U.S.-China relations is crucial, as it may reshape the market landscape. Overall, for the Asian stock market, Nomura maintains a strategic overweight view on Chinese stocks, with overweight views on India and South Korea. In the ASEAN region, it is overweight on Malaysia, neutral on Indonesia, the Philippines, and Singapore, and underweight on Thailand. By sector, the bank maintains an overweight view on semiconductors and AI-related fields, including China and South Korea, but holds an underweight view on traditional technology hardware, IT software, and services. In electric vehicles and batteries, it is optimistic about leading stocks. Additionally, the bank holds an overweight view on banks and financial stocks. However, it is underweight on traditional old economy sectors such as materials and energy, as well as healthcare