JPMorgan has downgraded its rating on Chinese stocks, citing challenges in China’s economic growth and insufficient policy support, as well as increased market volatility due to the impact of the upcoming U.S. presidential election. The bank advises investors to consider reallocating their investments to other emerging markets.
On Wednesday, in a report led by Pedro Martins, the team of strategists downgraded their rating on Chinese stocks from “overweight” to “neutral.”
They warned that another trade war between the U.S. and China may erupt before the November presidential election, which could affect the Chinese stock market. Additionally, the policies implemented by the Chinese authorities are deemed insufficient to help the country emerge from its economic slowdown.
They also stated, “The potential impact of ‘Trade War 2.0’ (tariffs increasing from 20% to 60%) may be greater than the initial trade war.”
The strategists wrote, “We expect China’s long-term growth to show a structural decline due to supply chain shifts, escalating U.S.-China conflicts, and ongoing domestic issues.”
The emerging markets recommended by the strategists include India, Mexico, Saudi Arabia, Brazil, and Indonesia. This downgrade aligns with the global trend of companies reducing their exposure to Chinese stocks. Institutions such as UBS and Nomura have also adjusted their ratings on Chinese stocks.
Earlier this month, UBS Wealth Management announced that it had downgraded its rating on Chinese stocks from “overweight” to “neutral,” citing China’s weakened economy and increased geopolitical risks.
UBS pointed out that the outcomes of China’s Third Plenary Session in July did not bring any surprises, with overall soft macro data on loan demand, industrial production, fixed asset investment, and retail sales, along with a lack of significant upward pressure on consumer prices and no substantial improvement in the real estate market.
At the end of August, Nomura also released a report lowering its rating on the MSCI China Index from “overweight” to “neutral.”
In another report written by Wendy Liu, Chief Asia and China Equity Strategist at JPMorgan, the baseline target for the MSCI China Index by the end of 2024 was revised down from 66 to 60, and the forecast for the Shanghai and Shenzhen 300 Index was adjusted from 3,900 points to 3,500 points.
JPMorgan has increased the cash level in its Chinese stock investment portfolio from 1% to 7.7%, reflecting a more cautious stance.
Currently, most major banks worldwide predict that China’s economic growth rate for this year will be below 5%, with Bank of America being the latest financial institution to revise its forecasts downward. JPMorgan’s economist Zhu Haibin had previously lowered the GDP growth forecast for China in 2024 to 4.6%.