China Thematic Will Outperform, JPMorgan's Liu Says

JPMorgan's Chief Asia and China Equity Strategist, Wendy Liu, has expressed optimism about the future of China’s stock market and real estate sector, despite recent challenges. In a recent interview with CNBC, Liu anticipates a pause in the recent stock rally but is confident that earnings will improve in 2024 compared to 2023. She noted that the Chinese stock market is still one of the cheapest in the Asia Pacific region, with the CSI300 equity benchmark hitting an eight-month high on Monday and up 4.97% so far this year at 3,601.48. Liu expects the index to reach 3,900 by the end of the year.

Regarding the real estate sector, Liu described it as being at an "inflection point" and stated that JPMorgan is "constructive" on the sector. Last week, Chinese authorities pledged new support for state-owned enterprises to enable them to buy unsold apartments. This positive outlook is supported by the recent policy shift in China, which aims to address the risk of a debt-deflation spiral. Policymakers are adopting a comprehensive strategy that includes monetary, fiscal, and industry-specific measures. However, sustainable economic stabilization requires further clarity on growth strategies, especially in the housing market. Meanwhile, business confidence remains subdued, and the export landscape will likely be clouded by the uncertainties of the upcoming U.S. elections.



Liu's optimism aligns with the recent market rally, which underscores the impact of depressed valuations, light investor positioning, and favorable policy catalysts. The MSCI China's forward P/E ratio has risen to align with the 15-year average, indicating a valuation re-rating. A sustained rally may require investors to view China as a strategic rather than a tactical investment. Any further upside will likely require details on policy implementation and an eventual improvement in economic data.

Beijing's latest policy measures, alongside the monetary easing led by the Federal Reserve, should be supportive of global risk assets, including Chinese equities. In addition to Chinese equities, some investors could also consider regions or sectors that could benefit from stronger Chinese growth, such as commodities or consumer discretionary.



In conclusion, JPMorgan's optimism about China's stock market and real estate sector is based on the expectation of improved earnings in 2024, the relatively cheap valuation of the Chinese stock market, and the recent policy shift in China aimed at addressing economic challenges. Despite the ongoing trade tensions with the U.S., China is making significant strides in its tech and semiconductor industries, which signals a potential turnaround for the country's economy. Investors should consider the opportunities presented by the expected improvement in earnings and the potential turnaround in the real estate sector, while keeping an eye on policy developments and economic data.