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JPMorgan Chase & Co. abandoned its buy recommendation for Chinese stocks, citing heightened volatility around the upcoming US elections in addition to growth headwinds and tepid policy support.\u00a0<\/p>\n
China was downgraded to neutral from overweight in the bank\u2019s emerging markets allocation, strategists led by Pedro Martins wrote in a note Wednesday. The potential for another trade war between Washington and Beijing could weigh on shares, while China\u2019s moves to lift itself out of its economic slump remain \u201cunderwhelming,\u201d they said.<\/p>\n
\u201cThe impact of a potential \u2018Tariff War 2.0\u2019 (with tariffs increasing from 20% to 60%) could be more significant than the first tariff war,\u201d the analysts wrote. \u201cWe expect China\u2019s long-term growth to trend down structurally due to supply-chain relocation, the expansion of U.S.-China conflicts, and continued domestic issues,\u201d they added.<\/p>\n
JPMorgan joins a growing chorus of global firms downgrading their expectations for China\u2019s stock market, following similar moves by former China bulls UBS Global Wealth Management and\u00a0Nomura Holdings Inc.<\/a>\u00a0in the last few weeks. It signals exclusion of China is becoming a popular strategy for investors and analysts amid the country\u2019s dimming prospects and the likelihood of better returns elsewhere.<\/p>\n Economists increasingly think China will miss its growth target of around 5% this year\u2014and many equity analysts are now pointing their clients elsewhere.<\/p>\n The JPMorgan strategists suggested investors use the money freed up by downgrading China to raise exposure to the markets the U.S. bank is already overweight on: India, Mexico, Saudi Arabia, Brazil, and Indonesia. They also noted challenges in managing the high weight of China in the MSCI Emerging Markets Index, and the growth of EM ex-China mandates.<\/p>\n New EM equity funds that exclude China are sprouting up, and have already matched the\u00a0annual record of new launches\u00a0<\/a>of 19 set last year as investors seek better returns outside of the country. Meanwhile, the outperformance of India and Taiwan puts the weight for each of them only a few percentage points away in\u00a0replacing\u00a0<\/a>China\u2019s top spot in EM equity portfolios.<\/p>\n In a separate note written by strategists including JPMorgan chief Asia and China equity strategist Wendy Liu, the bank cut its end-2024 base target for the MSCI China Index to 60 from 66, and for the CSI300 Index to 3,500 from 3,900. Those predictions are still above where the two indexes are currently trading.\u00a0<\/p>\n The\u00a0vast majority<\/a>\u00a0of global banks now expect China\u2019s economy to grow less than 5% this year, with Bank of America Corp. the latest to slash its forecast. JPMorgan\u2019s Haibin Zhu has also cut China\u2019s 2024 GDP growth forecast to 4.6%.<\/p>\n \u201cWe think the market may trade on the weak side during Sept-Oct after Q2 results,\u201d Liu wrote. \u201cDuring this time, the U.S. presidential election, the Fed\u2019s rate decisions, and the U.S. growth outlook will be front and center.\u201d<\/p>\n JPMorgan also raised the cash level in its China equity model portfolio to 7.7% from 1%, according to a report.<\/p>\n<\/div>\nRecommended reading:<\/strong>
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