JPMorgan Chase & Co. has withdrawn its buy rating on Chinese stocks, citing increased volatility related to the upcoming U.S. elections, in addition to growth issues and weak political support.
China was downgraded to neutral from chubby within the bank’s emerging markets allocation, strategists led by Pedro Martins wrote in a note on Wednesday. The potential of one other trade war between Washington and Beijing could weigh on stocks, while China’s efforts to emerge from its economic slump remained “disappointing,” they said.
“The impact of a potential ‘Tariff War 2.0’ (with tariffs rising from 20% to 60%) could be more severe than that of the first tariff war,” the analysts wrote. “We expect China’s long-term growth to structurally slow due to shifting supply chains, escalating U.S.-China conflicts, and ongoing domestic political issues,” they added.
JPMorgan joins a growing chorus of world corporations revising their expectations for the Chinese stock market downward after former China bulls UBS Global Wealth Management and Nomura Holdings Inc. in recent weeks. It suggests that excluding China is becoming a preferred strategy for investors and analysts, given the country’s bleak outlook and the likelihood of higher returns elsewhere.
There are growing fears amongst economists that China will miss its growth goal of around 5% this yr – and plenty of stock analysts are actually referring their clients to other markets.
JPMorgan strategists suggested that investors should use the cash freed up by China’s downgrade to extend their exposure to markets where the U.S. bank is already chubby: India, Mexico, Saudi Arabia, Brazil and Indonesia. They also identified that it could be difficult to administer China’s high weight within the MSCI Emerging Markets Index and the expansion of EM mandates without China.
New EM equity funds without China are arising and have already reached the identical level as Annual record for brand new launches of 19 set last yr as investors search for higher returns outside the country. Meanwhile, the outperformance of India and Taiwan is barely just a few percentage points away from the 2 countries’ weightings. Substitute China’s top spot in EM equity portfolios.
In a separate note from strategists including Wendy Liu, chief Asia and China equity strategist at JPMorgan, the bank lowered its end-2024 base goal for the MSCI China Index to 60 from 66 and for the CSI300 Index to three,500 from 3,900. These forecasts are still above the present price of the 2 indices.
The overwhelming majority of world banks now expect China’s economy to grow by lower than 5% this yr. Bank of America Corp. recently significantly lowered its forecast. Haibin Zhu of JPMorgan also lowered his GDP growth forecast for China in 2024 to 4.6%.
“We think the market may be rather weak in September and October after the second quarter results,” Liu wrote. “During this period, the US presidential election, the Fed’s interest rate decisions and the US growth outlook will be in focus.”
According to a report, JPMorgan also increased the money holdings in its model portfolio for China equities from 1% to 7.7%.
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