Source: Wall Street News
J.P. Morgan believes that in addition to improved profits, favorable factors such as improved shareholder returns, capital market reforms, real estate market support policies, optimistic expectations from overseas investors, and the return of foreign capital all support the rebound in the Chinese stock market.
The recent strong rebound in AH shares has caused major Wall Street banks to re-examine the prospects of the Chinese stock market. Bank of America Merrill Lynch claims that the “worst” period has passed, and Goldman Sachs continues to prosper the Chinese stock market, predicting that under optimistic circumstances, the valuations of listed Chinese companies may increase by as much as 40%.
J.P. Morgan even shouted at Wall Street. It increased its positions in Chinese stocks in May, then patiently waited for the economy to recover at an accelerated pace.
J.P. Morgan's team of analysts Wendy Liu wrote in a report released last week:
According to EPFR data, as of the end of March, global, global (excluding the US), emerging markets, and Asian (excluding Japan) funds held shares in China were lower than 1.8%/4.8%/3.3%/7% of their respective MSCI benchmark indices.
According to EPFR data, every time these four types of funds reduce their low allocation status compared to the MSCI benchmark by 25 basis points, the Chinese stock market will have a net inflow of 284 billion yuan (about 39.2 billion US dollars).
From February to April of this year, the MSCI China Index achieved the best three-month return since opening. The price-earnings ratio was revalued 8.9 times at the end of March to 9.7 times the current increase, with an increase of 9.3%.
J.P. Morgan said that China is already in the early stages of recovery, and government policies and market dynamics are showing positive signs, while other countries are facing more challenges in the late recovery period. The agency anticipates that the next peak of China's expansion cycle may arrive in the first half of 2025.
As the economy recovers at an accelerated pace, J.P. Morgan expects that the forward price-earnings ratio of the MSCI China Index will also increase, further driving the index's EPS (earnings per share) growth in the 2024-2025 period.
J.P. Morgan predicts that the annual EPS growth rate of the MSCI China Index and the Shanghai and Shenzhen 300 Index in 2024 will increase from 10% and -3% in 2023 to 14% and 15%, respectively.
In addition to improving profits, J.P. Morgan Chase pointed out that favorable factors such as improved shareholder returns, capital market reforms, real estate market support policies, investors' optimistic expectations, and the return of foreign capital will all support the rebound of the Chinese stock market.
J.P. Morgan suggests focusing on corporate earnings and real estate data for the first quarter of 2024. According to IBES data, of the 11 GICS industries in the MSCI China Index, EPS in 5 industries reversed last year's decline and achieved positive growth in the first quarter. The agency also made similar predictions about the trend of the Shanghai and Shenzhen 300 Index.
J.P. Morgan's benchmark forecast shows that the MSCI China Index and the Shanghai and Shenzhen 300 Index will rise to 66 and 3900 respectively by the end of 2024. In other words, for the Shanghai and Shenzhen 300 Index, there is still room for growth of nearly 7% during the year.
Notably, the J.P. Morgan Chase report indicates that China's real estate market has moved from a period of growth to a period of adjustment. Despite many challenges, demand for improved housing may still support the real estate market until 2026-2027.
According to the report, according to the UN population data forecast, China's population aged 35 to 65 will increase from 622.9 million in 2023 to 642.9 million by 2025.
As the population in the 35 to 65 age group increases, it is expected that there will be a relatively stable demand for upgrades. This group of people may seek better living conditions, thereby driving the improved housing market.
There is a certain inventory of unsold completed homes and homes under construction in China. The increase in improved demand can help absorb these inventories and provide support for the real estate market for a period of time. J.P. Morgan predicts that demand for improved housing may support the real estate market until 2026-2027.
Also, according to UN population data, the Chinese homebuyer population will increase by 8.9 million, 11.1 million, 9.4 million, and 2.7 million in 2024, 2025, 2026, and 2027, respectively, which will support the removal of real estate inventory during the transition period.
Editor/jayden