JPMorgan Abandons Recommendation to Buy China Stocks Ahead of US Election
- Bank cuts stocks recommendation to neutral from overweight
- Geopolitical risks, lack of policy support prompt shift
The vast majority of global banks now expect China’s economy to grow less than 5% this year.
Photographer: Raul Ariano/BloombergJPMorgan 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.
China was downgraded to neutral from overweight, strategists led by Pedro Martins wrote in a note Wednesday. The potential for another trade war between Washington and Beijing could weigh on shares in the run up to November’s US presidential vote, they warned, while moves by President Xi Jinping’s government to help pull the country out of its economic slump continue to be “underwhelming.”
“The impact of a potential ‘Tariff War 2.0’ (with tariffs increasing from 20% to 60%) could be more significant than the first tariff war,” the strategists wrote. “We expect China’s long-term growth to trend down structurally due to supply-chain relocation, the expansion of US-China conflicts, and continued domestic issues.”
The strategists also noted challenges in managing the high weight of China in the MSCI emerging-market index, and the growth of EM ex-China mandates, as institutional factors likely to drag on stock prices.
China Seen Missing Growth Target in 2024
Economic momentum has waned amid persisting property slump, tight fiscal stance
Sources: National Bureau of Statistics, Bloomberg
Note: China didn't set an annual growth target for 2020, when the pandemic first hit.
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. They’re still above the 55.7 and 3,252 levels the gauges last closed at.
The moves come after the vast majority of global banks now expect China’s economy to grow less than 5% this year, with Bank of America Corp. the latest to slash its forecast. JPMorgan’s Haibin Zhu has also cut China’s 2024 GDP growth forecast to 4.6%.
“We think the market may trade on the weak side during Sept-Oct after Q2 results,” Liu wrote. “During this time, the US presidential election, the Fed’s rate decisions, and the US growth outlook will be front and center.”
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JPMorgan also raised the cash level in its China equity model portfolio to 7.7% from 1%, according to a report.
