JP Morgan Chase & Co. withdrew its buy recommendation for Chinese stocks, citing increased volatility due to the upcoming U.S. elections, headwinds to growth and weak policy support.
The bank's emerging markets allocation to China was downgraded to neutral from overweight, strategists led by Pedro Martins wrote in a note Wednesday. The prospect of another trade war between Washington and Beijing could weigh on stocks, while China's steps to pull itself out of economic slowdown remain “disappointing,” they said.
“The impact of a potential 'tariff war 2.0' (in which tariffs would rise from 20% to 60%) could be far more significant than the first tariff war,” the analysts wrote. “We anticipate that China's long-term growth will be structurally depressed due to supply-chain shifting, escalation of U.S.-China conflicts, and continued domestic issues,” they added.
JPMorgan joins a growing line of global firms slashing their expectations for China’s stock market. Former China bulls UBS Global Wealth Management and Nomura Holdings Inc. have made similar moves in the past few weeks. It signals that bailing out China is becoming a popular strategy for investors and analysts as the country’s prospects dim and better returns are likely elsewhere.
Economists believe China will miss its 5% growth target this year – and many equity analysts are now suggesting their clients go elsewhere.
JPMorgan strategists suggested investors use the money freed up by downgrading China to increase exposure to markets the U.S. bank already relies more on: India, Mexico, Saudi Arabia, Brazil and Indonesia. They also noted challenges in managing China's high weighting in the MSCI Emerging Markets Index and the growth of EM ex-China mandates.
New EM equity funds excluding China are emerging, and have already equalled the annual record of 19 new launches set last year as investors seek better returns outside the country. Meanwhile, the outperformance of India and Taiwan has put each of them just a few percentage points away from replacing China’s top spot in EM equity portfolios.
In a separate note written by strategists including JPMorgan's Asia head and China equity strategist Wendy Liu, the bank cut its end-2024 basis target for the MSCI China index to 60 from 66, and for the CSI 300 index to 3,500 from 3,900. These forecasts are still above the levels where both indexes are currently trading.
The majority of global banks now expect China's economy to grow less than 5% this year, with Bank of America Corp. cutting its forecast. JPMorgan's Haibin Zhu also lowered China's 2024 GDP growth forecast to 4.6%.
“We think the market could see weakness during September-October after the second quarter results,” Liu wrote. “During this time, the US presidential election, the Fed's rate decision and the US growth outlook will be front and center.”
JPMorgan has also increased the cash level in its China equity model portfolio from 1% to 7.7%, according to a report.
The bank's emerging markets allocation to China was downgraded to neutral from overweight, strategists led by Pedro Martins wrote in a note Wednesday. The prospect of another trade war between Washington and Beijing could weigh on stocks, while China's steps to pull itself out of economic slowdown remain “disappointing,” they said.
“The impact of a potential 'tariff war 2.0' (in which tariffs would rise from 20% to 60%) could be far more significant than the first tariff war,” the analysts wrote. “We anticipate that China's long-term growth will be structurally depressed due to supply-chain shifting, escalation of U.S.-China conflicts, and continued domestic issues,” they added.
JPMorgan joins a growing line of global firms slashing their expectations for China’s stock market. Former China bulls UBS Global Wealth Management and Nomura Holdings Inc. have made similar moves in the past few weeks. It signals that bailing out China is becoming a popular strategy for investors and analysts as the country’s prospects dim and better returns are likely elsewhere.
Economists believe China will miss its 5% growth target this year – and many equity analysts are now suggesting their clients go elsewhere.
JPMorgan strategists suggested investors use the money freed up by downgrading China to increase exposure to markets the U.S. bank already relies more on: India, Mexico, Saudi Arabia, Brazil and Indonesia. They also noted challenges in managing China's high weighting in the MSCI Emerging Markets Index and the growth of EM ex-China mandates.
New EM equity funds excluding China are emerging, and have already equalled the annual record of 19 new launches set last year as investors seek better returns outside the country. Meanwhile, the outperformance of India and Taiwan has put each of them just a few percentage points away from replacing China’s top spot in EM equity portfolios.
In a separate note written by strategists including JPMorgan's Asia head and China equity strategist Wendy Liu, the bank cut its end-2024 basis target for the MSCI China index to 60 from 66, and for the CSI 300 index to 3,500 from 3,900. These forecasts are still above the levels where both indexes are currently trading.
The majority of global banks now expect China's economy to grow less than 5% this year, with Bank of America Corp. cutting its forecast. JPMorgan's Haibin Zhu also lowered China's 2024 GDP growth forecast to 4.6%.
“We think the market could see weakness during September-October after the second quarter results,” Liu wrote. “During this time, the US presidential election, the Fed's rate decision and the US growth outlook will be front and center.”
JPMorgan has also increased the cash level in its China equity model portfolio from 1% to 7.7%, according to a report.