JPMorgan Chase & Co. has dropped its buy recommendation for Chinese stocks, citing increased market volatility driven by the upcoming US elections, China’s economic headwinds, and weak policy measures.
Strategists, led by Pedro Martins, downgraded China from overweight to neutral in the bank’s emerging markets portfolio, reflecting concerns over potential escalations in the US-China trade tensions, with a new "Tariff War 2.0" possibly increasing tariffs from 20% to 60%. The bank also highlighted China’s structural growth issues, exacerbated by supply chain relocations and prolonged domestic challenges.
Amid mounting global skepticism toward China, JPMorgan joins firms like UBS Global Wealth Management and Nomura Holdings in downgrading their outlooks. China's struggle to hit its 5% GDP growth target has driven investors to seek better opportunities elsewhere. JPMorgan advised reallocating funds to markets where it remains overweight, such as India, Mexico, Saudi Arabia, Brazil, and Indonesia. These countries offer more favorable growth prospects and less geopolitical risk compared to China.
JPMorgan also raised the cash holdings in its China equity model portfolio from 1% to 7.7%, underscoring its cautious stance. The bank reduced its end-2024 targets for major Chinese stock indexes, lowering MSCI China to 60 from 66 and CSI300 to 3,500 from 3,900. Despite this, the revised targets still exceed current trading levels.
Additionally, the surge in new emerging market equity funds excluding China signals a growing investor shift away from Chinese markets. This trend may accelerate as the outperformance of India and Taiwan brings them closer to overtaking China’s dominant position in emerging market portfolios.
JPMorgan warned that markets might face further pressure through September and October, with US presidential election outcomes, Federal Reserve rate decisions, and US economic growth remaining critical factors. The broader consensus now points toward China’s economic underperformance, with Bank of America recently cutting its growth forecast for China’s 2024 GDP to 4.6%.
In conclusion, JPMorgan’s move away from Chinese stocks reflects growing concerns about China’s ability to sustain growth in a challenging global environment, and it marks a shift toward safer, higher-yielding emerging markets.
Strategists, led by Pedro Martins, downgraded China from overweight to neutral in the bank’s emerging markets portfolio, reflecting concerns over potential escalations in the US-China trade tensions, with a new "Tariff War 2.0" possibly increasing tariffs from 20% to 60%. The bank also highlighted China’s structural growth issues, exacerbated by supply chain relocations and prolonged domestic challenges.
Amid mounting global skepticism toward China, JPMorgan joins firms like UBS Global Wealth Management and Nomura Holdings in downgrading their outlooks. China's struggle to hit its 5% GDP growth target has driven investors to seek better opportunities elsewhere. JPMorgan advised reallocating funds to markets where it remains overweight, such as India, Mexico, Saudi Arabia, Brazil, and Indonesia. These countries offer more favorable growth prospects and less geopolitical risk compared to China.
JPMorgan also raised the cash holdings in its China equity model portfolio from 1% to 7.7%, underscoring its cautious stance. The bank reduced its end-2024 targets for major Chinese stock indexes, lowering MSCI China to 60 from 66 and CSI300 to 3,500 from 3,900. Despite this, the revised targets still exceed current trading levels.
Additionally, the surge in new emerging market equity funds excluding China signals a growing investor shift away from Chinese markets. This trend may accelerate as the outperformance of India and Taiwan brings them closer to overtaking China’s dominant position in emerging market portfolios.
JPMorgan warned that markets might face further pressure through September and October, with US presidential election outcomes, Federal Reserve rate decisions, and US economic growth remaining critical factors. The broader consensus now points toward China’s economic underperformance, with Bank of America recently cutting its growth forecast for China’s 2024 GDP to 4.6%.
In conclusion, JPMorgan’s move away from Chinese stocks reflects growing concerns about China’s ability to sustain growth in a challenging global environment, and it marks a shift toward safer, higher-yielding emerging markets.