JPMorgan's Chief China Economist and Head of Greater China Economic Research, Zhu Feng, alongside China Equity Strategist Zhang Xiaoning, recently discussed key topics regarding China's current economic and stock market landscape with media. Their analysis covered China's macroeconomic trajectory, stock market outlook, and investment opportunities.
The bank maintains a positive and optimistic outlook on Chinese equities. It believes the A-share market retains considerable upside potential driven by a "dual resonance" of ample liquidity and improving earnings expectations. It advises investors to focus on high-quality growth themes, specifically highlighting three core directions: the AI ecosystem, energy security, and robotics.
JPMorgan also noted a clear trend of foreign capital increasing allocations to Chinese assets this year. Both regional and global active funds have been consistently reducing their underweight positions in Chinese assets. Data shows that as of May 15th, overseas funds have recorded a net inflow of $13.1 billion (approximately RMB 89 billion) year-to-date, a figure significantly higher than levels seen in previous years during the same period.
**A-Shares Still Hold Considerable Upside Potential** Following recent new highs for major indices, the broader A-share market has entered a phase of consolidation. As of May 22nd, the Shanghai Composite Index closed at 4112.90 points, the CSI 300 Index at 4845.10 points, and the MSCI China Index at 76.33 points.
From its latest strategic perspective, JPMorgan remains broadly positive on the Chinese equity market. "We assess that the A-share market still possesses considerable upside room," stated Zhang Xiaoning, attributing the core support to the dual factors of ample liquidity and favorable earnings expectations.
For the MSCI China Index, JPMorgan set its year-end base case target at 100 points, with an optimistic scenario of 120 points and a pessimistic scenario of 80 points. For the CSI 300 Index, the year-end base case target is 5200 points, with optimistic and pessimistic scenarios at 6000 and 4200 points, respectively.
Meanwhile, since the beginning of 2026, Hong Kong stocks have shown relatively weaker performance compared to A-shares. Zhang Xiaoning attributed this primarily to two factors. First, from a liquidity framework perspective, while domestic liquidity has remained healthy, fluctuations in overseas liquidity have exerted more pressure on the Hong Kong market. Second, regarding fundamental earnings, sectors with higher weightings in the Hong Kong market, such as Information Technology and Consumer Discretionary (which includes many e-commerce companies), have exhibited relatively weaker earnings growth.
Looking ahead for Hong Kong stocks, Zhang Xiaoning noted that under the logic of ample market liquidity, capital typically prioritizes assets with the highest growth certainty. Currently, the e-commerce sector hasn't yet reached that position, and investors are still awaiting a turning point in its earnings. Concurrently, major Chinese internet companies are significantly accelerating their investments in AI, a trend expected to further support valuation expansion.
**Focus on Three High-Quality Growth Themes** Against the backdrop of ample liquidity and generally stable-to-improving earnings, JPMorgan is optimistic about three high-quality growth themes in Chinese equities: the AI ecosystem, robotics, and energy security.
Specifically: 1. **AI Ecosystem:** The entire AI value chain is expected to benefit comprehensively. 2. **Energy Security:** This encompasses new energy vehicles, power equipment (including grid equipment, energy storage), new energy sources, and related upstream materials. 3. **Robotics:** Humanoid robots may benefit this year from phased catalysts brought by listings of some new companies, while industrial robots are expected to benefit from a potential restart of the domestic capital expenditure upcycle by year-end.
For other sectors, Zhang Xiaoning recommends a stock-picking strategy. Within the consumer sector, focus should be on companies aligned with younger demographics' demands for mental and physical well-being to capture new consumption trends. For the property sector, priority should be given to high-quality developers in core areas of first-tier cities, which are poised to benefit from the current K-shaped recovery pattern and the leading rebound in first-tier city markets.
Additionally, to hedge against increasing oil price volatility risks, Zhang Xiaoning suggests investors moderately overweight the energy sector to counter related uncertainties and enhance overall portfolio resilience.
Regarding gold prices, a topic of significant investor interest, Zhu Feng assessed that continued gold accumulation by global central banks reflects insufficient trust in the existing international financial system. Against the backdrop of "de-dollarization" and multiple countries seeking local currency settlements, gold's importance as a key alternative asset is highlighted, and it will remain a crucial tool for addressing currency trust crises in the future.
**Foreign Capital Continuously Increases Allocations to Chinese Assets** Notably, foreign capital is accelerating its return and increasing allocations to Chinese assets. Zhang Xiaoning observed that the trend of foreign capital raising its allocation to Chinese assets is very clear based on actual fund flow data. This year, both regional and global active funds have been consistently reducing their underweight positions in Chinese assets.
Data from EPFR shows that as of May 15th, overseas funds have recorded a net inflow of $13.1 billion (approximately RMB 89 billion) year-to-date, significantly higher than levels in previous comparable periods.
"Foreign interest and attention towards the Chinese market have notably rebounded recently," Zhu Feng revealed, mentioning that during recent exchanges in the US, he distinctly felt that compared to the period of intense international competition when China was viewed as a "tradeable" market, foreign capital is now reconsidering China as an "investable" market once again.
Why is foreign capital persistently increasing allocations to Chinese assets? Zhang Xiaoning believes this is primarily supported by two factors: global liquidity drivers and the resilience of China's economic fundamentals.
On one hand, from a global macro liquidity perspective, the US dollar has generally shown weakness since the beginning of the year. This has directly prompted capital outflow from dollar-denominated assets, resulting in strong net inflows into emerging markets, including China.
On the other hand, regarding the characteristics of Chinese assets, since late February, geopolitical instability in the Middle East has intensified, while the macroeconomic resilience demonstrated by China's economy has become increasingly prominent. This important fundamental factor has bolstered international capital's confidence in continuing to allocate to Chinese assets.
Discussing foreign capital's preferences and shifts in allocating Chinese assets, Zhang Xiaoning pointed out that since most foreign institutions benchmark against the MSCI China Index—which objectively has high concentration—overseas-listed internet giants still constitute a large proportion of foreign investment in absolute terms.
"However, driven by the AI industry wave, long-term development expectations for energy security, and the robotics sector, overseas investors are gradually shifting from previously favoring large-cap internet companies in the consumer space towards targets focused on advanced manufacturing, even including some A-share listed companies," Zhang Xiaoning stated.
She further added that the AI field is mainly divided into capex-related hard-tech infrastructure (like semiconductors and related equipment) and large-model-related targets in Hong Kong stocks. From an overall allocation perspective, foreign capital's positioning is very clear, primarily concentrated in infrastructure-related hard-tech areas.
Comments