Should You Buy or Sell Chinese Stocks? Insights from JP Morgan

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JP Morgan Revises Stance: Downgrades China Stocks

On September 4, JP Morgan strategists, led by Pedro Martin, took a significant step by downgrading China from “overweight” to “neutral.” This move comes as they caution investors about the potential for a second tariff war following the U.S.
elections in November and the uncertain growth prospects of the nation.

The increased volatility leading up to the upcoming U.S.
presidential elections, compounded by headwinds against economic recovery and the tepid political support for the economy shown by Beijing so far, has fostered skepticism about China’s market appeal.

Why JP Morgan Recommends Selling Chinese Stocks

JP Morgan warns that the impact of a potential ‘Tariff War 2.0’ (with tariffs rising from 20% to 60%) could be more pronounced than the initial trade conflict.
They anticipate that China’s long-term growth may structurally decrease due to supply chain relocations, expanding conflicts between the U.S.
and China, and persistent internal issues.

The bank pointed out that proposed U.S.
tariffs of 60% on Chinese goods, as suggested by presidential candidate Donald Trump, could lower China’s GDP growth by two percentage points from the current forecast of 4% per year in 2025, barring any political response.

Shifting Investment Focus

JP Morgan now predicts annual growth in 2024 will reach only 4.6%, below the 5% target.
This prediction aligns with most global banks, which foresee less than 5% growth for China’s economy this year.
Bank of America Corp.
is among the latest to issue such a disappointing estimate.

This downgrade places JP Morgan alongside a growing number of global firms reducing their expectations for the Chinese stock market, following similar moves by former China bulls like UBS Global Wealth Management and Nomura Holdings Inc.
It indicates a shift in strategy among investors and analysts, focusing on better returns elsewhere.

Target Markets According to JP Morgan

JP Morgan strategists recommend using funds released from the downgrade to increase exposure to markets where the bank is already overweight, including India, Mexico, Saudi Arabia, Brazil, and Indonesia.

Moreover, new equity funds targeting emerging markets excluding China are gaining traction and have already matched last year’s record for new launches, as investors seek better returns outside of China.

In the meantime, the outperformance of India and Taiwan positions them as close competitors to China for the top spot in emerging markets equity portfolios.

Disclaimer

The information and considerations contained in this article should not be used as the sole or primary basis for making investment decisions.
Readers maintain full freedom and responsibility in their investment choices, reflecting their risk appetite and time horizon.

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