(Nov 27): JPMorgan Chase & Co 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 Wednesday. “Next year will bring multiple support factors such as 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% this quarter, while the broader MSCI Asia Pacific Index has gained 1.3%.
Batra and his colleagues recommended that investors buy China’s stocks in early April. Since then, the MSCI China gauge has risen about 33%, compared with an advance of 37% in the Asian benchmark.
The Chinese equity market is still in the early stages of recovering from its downcycle that began in late 2020, and therefore, “valuations remain acceptable and positioning still light,” they wrote in the note.
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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 toward China, alongside policy support, easy liquidity, governance reforms and net-positive prospects for AI-heavy stocks, means 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% from Wednesday’s close, they said. The bank is overweight China, Hong Kong, South Korea and India; neutral on Taiwan; and underweight Southeast Asia, based on the note.
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