JPMorgan upgrades China’s stocks on multiple positive drivers

These include policy support, easy liquidity, governance reforms and net-positive prospects for AI-heavy stocks

[SINGAPORE/ HONG KONG] JPMorgan Chase has raised its recommendation for China’s stocks to “overweight”, stating that the prospect of large gains next year now outweighs the risk of significant losses.

“China has given back most of its outperformance this year – making for an attractive entry point,” strategists at the bank, including Rajiv Batra, wrote in a note published on Wednesday (Nov 26).

“Next year will bring multiple support factors such as artificial intelligence (AI) adoption, consumption measures and governance reforms.”

JPMorgan’s positive switch comes following a pullback in Chinese equities from their multi-year highs reached about a month ago.

The MSCI China Index has dropped 6.2 per cent this quarter, while the broader MSCI Asia Pacific Index has gained 1.3 per cent.

Batra and his colleagues recommended that investors buy China’s stocks in early April. Since then, the MSCI China gauge has risen about 33 per cent, compared with an advance of 37 per cent in the Asian benchmark.

The Chinese equity market is still in the early stages of recovering from its down cycle that began in late 2020, and therefore “valuations remain acceptable and positioning still light”, they wrote in the note.

JPMorgan’s optimism toward China contrasts with the views of Morgan Stanley, whose strategists predict that the asset class will enter a phase of consolidation next year, amid an uncertain outlook for corporate earnings and high valuations.

Optimism towards China, alongside policy support, easy liquidity, governance reforms and net-positive prospects for AI-heavy stocks, means that Asian equities are most likely to deliver moderate to exceptional gains next year, the JPMorgan strategists said.

The MSCI Asia ex-Japan Index is likely to climb to 1,025 next year, implying a gain of about 15 per cent from Wednesday’s close, they said.

The bank is overweight on China, Hong Kong, South Korea and India; it is neutral on Taiwan, and underweight on South-east Asia, based on the note. BLOOMBERG

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