JP MORGAN CHASE(US:JPM)2025-06-15 16:03Investment Rating - The report indicates a cautious outlook for the China local markets, with a revised USD/CNY target lowered to 7.15 for Q4 2025, expecting a gentle downtrend to 7.10 by Q2 2026 [2][8][36] Core Insights - Financial markets are entering the second half of 2025 with a pessimistic tone regarding China, as the market-implied risk premium for China-linked assets remains downbeat [2][3] - Despite recent signs of cooling trade tensions, investor sentiment has not turned positive, reflecting ongoing concerns about the protracted US-China trade war and domestic economic headwinds [3][8] - The report highlights that moderating tariff risks may allow USD/CNY to follow a broader downtrend, although CNY's relative weakness could persist [2][11] Summary by Sections Economic Outlook - The report notes that structural economic challenges in China, such as persistent deflation, weak consumer confidence, and ongoing adjustments in the property market, have not been resolved [3][8] - The recent US-China tariff détente in Geneva has led to expectations of lower tariffs, which may help stabilize the CNY [8][36] Currency and Rates - The CNY TWI is expected to decline further towards 94, with plans to re-engage in short CNH/crosses in the second half of 2025 [11][36] - The report recommends staying long on 3-year CGBs, anticipating further easing from the PBoC and hedging against potential trade tensions [2][36] Liquidity and Banking - Deposit rates in China have been cut further, which lowers banks' funding costs but raises concerns about potential deposit outflows as savers seek higher returns from alternative financial products [19][31] - The report indicates that lighter issuance pressure from government bonds, coupled with sluggish loan demand, provides a favorable backdrop for CNY rates [25][31]