On Thursday, September 5, JPMorgan Chase downgraded its rating on Chinese stocks from “overweight” to “neutral” and advised against further investment in Chinese stocks.
According to Bloomberg, in its latest report, JPMorgan Chase warned of the risk of a second tariff war after the U.S. election, as well as expressed concerns about the outlook for China’s economic growth.
Led by strategist Pedro Martins, JPMorgan Chase lowered its rating on China’s emerging market allocation from “overweight” to “neutral.” They mentioned the possibility of another trade war between the U.S. and China creating pressure on the stock market, stating that Beijing’s measures to escape economic downturn have been “unsatisfactory.”
Analysts wrote, “The upcoming U.S. election could exacerbate volatility in the Chinese stock market, with the potential impact of ‘Tariff War 2.0’ possibly being greater than the first tariff war.”
They added, “We expect that due to supply chain shifts, escalating U.S.-China tensions, and ongoing domestic issues, China’s long-term economic growth will see structural decline.”
JPMorgan Chase stated that as implied by Republican presidential candidate Trump, the U.S. could impose a 60% tariff on Chinese products, which could potentially reduce China’s GDP growth rate for 2025 from the current predicted 4% by two percentage points without any policy response.
JPMorgan Chase is the latest financial institution to downgrade expectations for the Chinese stock market. Earlier, UBS Global Wealth Management and Nomura Holdings took similar actions. These signs indicate that with dim prospects for the Chinese economy and potentially better returns elsewhere, avoiding the Chinese market is becoming a popular strategy among investors and analysts.
Since reaching a peak in 2021, the CSI 300 Index in China has dropped by over 40%. With increasing economic and trade conflicts between Beijing and the U.S. and the EU, the Chinese economy is being impacted by a real estate crisis, leading to a negative view on China’s prospects on Wall Street.
The latest data shows that Chinese manufacturing activity in August hit a six-month low. Economic growth in the second quarter was lower than expected.
Following JPMorgan Chase, Goldman Sachs, and UBS Group lowering their forecasts for Chinese economic growth to below 5% last week, this week, joining the banking sector are Bank of America, Canadian investment banks, and TD Securities, among others. There is a new consensus among global major banks that China is unlikely to achieve its economic growth target in 2024.
As official economic data from the Chinese government is often manipulated, the actual growth situation is unknown to the outside world and could be worse.
The decision by Wall Street to lower expectations for the Chinese economy has intensified worries about the economic trend in China, as policymakers struggle to address the persistent slowdown in the real estate industry and weakened consumer and investor confidence.
Many stock analysts are advising clients to invest in other regions. JPMorgan Chase’s strategists suggest that investors use the funds released by downgrading Chinese stocks to increase exposure to India, Mexico, Saudi Arabia, Brazil, and Indonesia.