5th September 2024 – (New York) JPMorgan Chase & Co has abandoned its buy recommendation for Chinese stocks, downgrading the country from ‘overweight’ to ‘neutral’ due to increasing volatility surrounding the upcoming U.S. elections and ongoing economic challenges. In a note published on Wednesday, strategists led by Pedro Martins cited insufficient policy support and growth headwinds as key factors influencing this decision.
The bank warned that the potential for a renewed trade conflict between Washington and Beijing could negatively impact stock performance as November’s presidential election approaches. They described recent efforts by Chinese President Xi Jinping’s government to stimulate the economy as “underwhelming.”
“The impact of a potential ‘Tariff War 2.0’ could be more significant than the first,” the strategists noted, anticipating that tariffs might escalate from 20% to 60%. They expect China’s long-term growth trajectory to decline structurally due to supply-chain relocations, heightened US-China tensions, and persistent domestic issues.
Additionally, the report highlighted challenges related to China’s significant weight in the MSCI Emerging Markets Index, which could further suppress stock prices. In a separate analysis, JPMorgan reduced its end-2024 targets for the MSCI China Index from 66 to 60 and for the CSI300 Index from 3,900 to 3,500, although these targets remain above recent closing levels of 55.7 and 3,252, respectively.
As global banks increasingly predict that China’s economy will grow less than 5% this year—most recently reinforced by Bank of America—JPMorgan’s Haibin Zhu has also lowered the GDP growth forecast for 2024 to 4.6%.
“We anticipate the market may trade on the weak side during September and October following second-quarter results,” Wendy Liu, JPMorgan’s chief Asia and China equity strategist, commented. Key factors such as the US presidential election, Federal Reserve rate decisions, and the US growth outlook are expected to dominate market sentiment during this period.
In light of these developments, JPMorgan has increased the cash allocation in its China equity model portfolio from 1% to 7.7%.
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