JPMorgan's Chief Asian and China stock strategist Liu Mingdi believes that there are two positive factors in the current Chinese stock market: profit growth and active buybacks. In terms of portfolio, the company is bullish on high dividend, undervalued leading stocks, and AI sectors.

In addition, JPMorgan expects China's economy to grow by 4.6% in the whole year of 2024.

JPMorgan's strategist Liu Mingdi pointed out that there are two positive factors in the current Chinese stock market: high dividend, undervalued leading stocks, and AI sectors are bullish.

Recently, the unwinding of yen carry trades has driven a small amount of foreign capital from other markets to the Chinese stock market. However, she warned that in the second half of the year, we still need to pay attention to the potential risks that the US election may bring to the Chinese stock market.

Liu Mingdi also stated that if China's economic growth maintains an ideal situation in the second half of the year, the MSCI China Index may have single-digit upside, but she also emphasized that selecting individual stocks is more important than predicting the index's gain.

How to view the space of China's stock market? Liu Mingdi mentioned that there are two positive factors in the current Chinese stock market:

First, the market currently expects the year-on-year growth of the MSCI China Index's earnings to be 14%, and the year-on-year growth of the CSI 300 Index's earnings to be 12%, which is one standard deviation below the historical average. This is a considerable discount.

Second, stock buybacks are showing a positive trend. In the first seven months of this year, the total repurchase of MSCI China Index constituents was RMB 26 billion, accounting for about 3% of the total market value which is 1.9 times the average repurchase amount from 2021 to 2023.

In terms of portfolio, Liu Mingdi is optimistic about three directions:

First, continue to be bullish on defensive high-dividend stocks, such as banks, telecommunications, electrical utilities, highway stocks, etc. The key is to look at free cash flow. Some attractive companies have dividend yields of up to 6% or 7%;

Second, in the sectors with reasonable valuation and growth potential, focus on leading companies with pricing power, especially bullish on industry leaders with lower sensitivity to geopolitics, including some Chinese companies that are headquartered overseas and have a high domestic market share;

Third, AI theme-related sectors. Some hardware-related companies are expected to experience another round of rebound after a stock price correction.

Expected GDP growth rate for the full year is 4.6%

JPMorgan's chief economist in China and director of economic research in Greater China, Zhu Haibin, said he expects China's economy to grow by 4.6% in the whole year of 2024.

Zhu Haibin said this forecast takes into account the high base effect brought by China's strong economic performance in the second half of last year. Structurally, different industries in China are showing some differences in performance. Manufacturing investment still performed well in the first half of the year, while the consumer and real estate industries remained weak, and export data was eye-catching. Although there are signs of weaker export data since the second half of the year, overall, Zhu Haibin believes that exports will have a positive effect on China's GDP in the second half of the year. The impact of Europe raising import tariffs on new energy vehicles and other factors on China's exports is expected to be small. What needs more attention is the uncertainty brought by the US election.

Zhu Haibin also said that China's GDP growth this year depends more on domestic factors such as consumption and investment. Recently, positive policy signals to boost consumption, such as the strengthening of counter-cyclical policies and the emphasis on boosting consumption, have been seen at high-level meetings. For example, on July 31, the state issued "Measures to Restore and Expand Consumption," which includes 20 measures to restore and expand consumption. We will continue to pay attention to the implementation of policy.

Zhu Haibin expects that it is difficult to introduce large-scale fiscal stimulus plans, but current stimulus measures will be effectively used. For example, government bonds worth about RMB 2 trillion will be issued in the coming months. He also expects that the central bank will adopt a gradual approach to lowering the interest rate, with a projected 10 basis points cut in the fourth quarter of this year and the first quarter of next year, respectively.

Regarding real estate, Zhu Haibin believes that the decline in real estate is gradually narrowing. Currently, new housing construction and sales have both fallen by 70% and 60% respectively from their peak. It is expected that new housing construction and sales will fall by 14% and 13% respectively this year, and real estate investment will fall by 10%. It is expected that the real estate market will stabilize at the earliest by next year, and real estate investment will not be on parity or positive growth until 2026.

Editor/Lambor