JPMorgan has downgraded its investment outlook for China, moving from an overweight to a neutral stance, Market Watch reports.
This change reflects ongoing challenges in the Chinese market, including geopolitical tensions and sluggish economic growth. The move comes as JPMorgan’s chief emerging market equity strategist, Pedro Martins Jr., based in São Paulo, reassesses the bank’s investment strategy.
The downgrade follows a year in which the iShares MSCI China ETF (MCHI) has gained just 1%, significantly trailing the 16% rise of the S&P 500. JPMorgan’s analysts point to various factors influencing their decision, including weak policy support from Chinese authorities and difficulties in modeling the country’s stock market amid global trade tensions.
JPMorgan’s analysis highlights several risks, including potential impacts from a proposed increase in US tariffs on Chinese goods. Former President Donald Trump has suggested raising tariffs from 20% to 60%, a move that could substantially hinder China’s GDP growth and lead to retaliatory measures from Beijing. The bank’s examination of past US-China trade tensions shows that “risk-off” periods have historically resulted in negative returns for Chinese stocks.
In light of these challenges, JPMorgan is advising investors to adjust their portfolios by reducing exposure to Chinese stocks such as China Construction Bank, PDD Holdings, and Kingdee International. Instead, the bank recommends increasing investments in other emerging markets including India, Mexico, Saudi Arabia, Brazil, and Indonesia.
Despite these recommendations, JPMorgan acknowledges that their outlook could face challenges. The valuation of Chinese stocks is notably low, trading at 8.9 times forward earnings—23% below the 15-year average of 11. Additionally, if US economic performance declines, investors might turn to emerging markets, including China, for higher growth potential.
In broader market news, US stock index futures showed weakness following new economic data, while gold and oil experienced modest gains. The bond market curve has returned to an inverted state, with the 2-year yield surpassing the 10-year yield. Economic indicators such as the ADP private-sector employment report and ISM services data are expected to impact market trends.
In corporate updates, companies like Broadcom, Hewlett Packard Enterprise, and Tesla have made headlines with their earnings reports and strategic plans. Meanwhile, Verizon Communications announced a significant acquisition, and JetBlue saw an uptick in stock value following a revenue guidance increase. Electric vehicle charging company ChargePoint faced a decline after forecasting weaker-than-expected revenue.
