With the U.S. midterm elections concluded and the global AI trade showing signs of loosening, Chinese assets are entering a new allocation window.
JPMorgan believes that valuation and positioning resets, policy support, and capital rotation will drive further gains in A-shares, estimating an additional 10%-15% upside, maintaining its preference for A-shares over Hong Kong stocks, and focusing on domestic tech plays and brokerage stocks.
Chinese equities staged a strong rebound after the U.S. midterm elections concluded, and JPMorgan argues that with the uncertainty surrounding the U.S. midterm elections fading and the global AI trade showing cracks, Chinese assets are ushering in a fresh allocation window.
On November 5, the three major A-share indices fluctuated higher, with the ChiNext Index rising over 3% intraday and the STAR 50 Index surging more than 5% at one point, though both pulled back by the midday close. Solar equipment, precious metals, and lithium battery sectors led the gains.
The previous day, on November 4, A-shares also rallied sharply, with the CSI 300 rising 2.3%, the ChiNext Index climbing 6.4%, and the STAR 50 Index surging 9.9%. A-share turnover returned to 2 trillion yuan for the first time in 25 trading days.
According to JPMorgan strategists Chloe Liu, Tim Huang and others in their latest report, the rebound is attributed to three major drivers: the resolution of U.S. midterm election risk, a significant reset in valuations and positioning, and the entry of the national team and regulators to boost sentiment.
Analysts noted that A-share valuations have only recovered 8%-10% from the "924" low, remaining at depressed levels, with an estimated further 10%-15% rebound potential. They maintained their view that A-shares are preferable to Hong Kong stocks and reiterated their bullish stance on domestic tech and brokerage sectors.
The Goldman Sachs Asia team, in a report titled "China: Buy the Dip?", wrote that Chinese domestic AI-related names, after pulling back nearly 54% from summer highs, "look increasingly poised for a rebound," and expressed optimism about its "China Domestic AI Basket" (GSXACADO).
U.S. midterm election results are out, and market uncertainty has dissipated. JPMorgan believes that given legislative constraints and presidential veto power, the election outcome will not bring substantive changes to the overall U.S. policy landscape, and the market had already priced in a scenario of a Democratic sweep of both chambers.
Historical data shows that Chinese stocks tend to rebound after U.S. midterm elections conclude, driven by the dissipation of uncertainty. More notably, the global AI trade is showing signs of loosening. Texas accounts for over 25% of planned U.S. data center capacity through 2030, and the state's incoming administration has signaled a stance favoring stricter restrictions on new data center construction.
JPMorgan pointed out that as controversy over the global AI trade heats up, Chinese assets stand to benefit — the current situation could trigger short covering and capital rotation. The report also emphasized that Chinese equities can offer diversification value relative to the global AI trade, and China's AI development has its own independent trajectory with relatively limited dependence on U.S. AI capital expenditure.
JPMorgan believes that a comprehensive reset in valuations and positioning is an important structural foundation supporting further gains. On valuations, even after the November 4 rally, the MSCI China and CSI 300 indices remain only 8%-10% above the "924" low, leaving room for further valuation repair.
Goldman Sachs data shows that the forward price-to-earnings ratio of its China Domestic AI Basket has compressed from about 53 times at the July peak to around 25 times currently, returning to levels seen before the AI rally began in summer 2025. The basket index has fallen about 55% from its early July high, nearly erasing all year-to-date gains.
On positioning, JPMorgan listed three sets of data: margin financing balances have fallen from 3 trillion yuan in June to about 2.3 trillion yuan currently, back to September 2025 levels, with this year's leverage accumulation largely unwound; northbound holdings' exposure to the A-share IT sector dropped from 35% at end-June to 27% at end-September; and among domestic mutual funds' top ten holdings, IT weighting fell from about 60% in June to 48% in September, with JPMorgan estimating a further decline to about 40% in October.
This positioning reset means a substantial pool of sidelined capital has the potential to enter the market, which could drive a phased rebound in the tech sector. Goldman Sachs likewise views positioning as an important structural support. Its report shows that global active funds' allocation to China has continued to decline to 5.5%, near a five-year low and at the 6th percentile since 2015, down about two-thirds from a peak allocation of roughly 15% in 2020, and 215 basis points underweight relative to benchmark.
Goldman Sachs analysts Finn Dattenberg-Doyle and Janvi Sharma wrote in the report: "From a positioning perspective, after the recent correction, the setup looks more constructive."
Beyond market endogenous drivers, policy-level support is equally important. The STAR 50 Index has pulled back about 50% from its June high and decoupled from the U.S. AI rebound in August. Entering October, the national team accelerated ETF purchases, with net buying reaching 330 billion yuan in a single month.
Net ETF inflows since the second half of the year have already amounted to 35% of the net outflows in the first half, leaving about 900 billion yuan in potential "dry powder." This week's signals from the People's Bank of China and the China Securities Regulatory Commission further indicate that regulators intend to cushion the market's downside. JPMorgan characterized this as "not a bazooka, but a firmer floor."
JPMorgan's investor feedback collected during roadshows in Hong Kong and Singapore shows that most investors agree downside is limited after policy support, with offshore investors showing relatively stronger willingness to add exposure. Investor focus is spreading from AI to more diversified sectors.
Bank stocks received the most attention, followed by healthcare and some consumer companies offering attractive shareholder returns and high earnings visibility. At the individual stock level, JPMorgan reiterated its top ten preferred China market names while adding an AI-related stock screening list — with criteria including: JPMorgan "Overweight" rating, 2027 estimated P/E below 20 times, 2027 estimated EPS growth exceeding 30%, and share price down more than 40% from 52-week highs.
Goldman Sachs highlighted the GSXACADO basket, with constituents covering Piotech, Changchuan Technology, Hua Hong Semiconductor, AMEC, ChangXin Memory Technologies, and Cambricon, among others.
Comments