“China’s domestic market may enter a period for validation of corporate fundamentals, and the continued implementation of fiscal policies will drive recovery of production and consumer demand, pushing the market toward value recovery on the back of corporate performance,” said Zhu Chaoping, Senior Global Market Strategist at J.P. Morgan Asset Management, in the latest report.
The stronger-than-expected policy easing since late September has boosted investor confidence and improved market expectations for listed companies’ profitability and market liquidity and in the coming period of time, domestic policies are expected to play a crucial role in supporting economic growth, he said.
Government support measures in consumption and manufacturing are already showing positive effects, with examples such as a strong rebound in home appliance sales and increased investment in manufacturing equipment driven by government subsidies, it said.
Despite uncertainties surrounding policies, the consumption data for October indicate improving market confidence, however, the real estate market is still searching for a bottom and requires sustained policy support to achieve a stable recovery, it said.
“For the Chinese market, recent policies have supported the first phase of rebound, mainly driven by valuation recovery. However, in the near term, if we enter a policy vacuum, a more cautious stance on broader market indices might be necessary. That said, we believe there are still abundant cyclical opportunities across various sectors,” it said.
On sector-specific demand cycles, industries such as shipbuilding, impacted by global overcapacity, are less affected by domestic policies, and these sectors have shown significant rebounds from bottoms, offering alpha opportunities for investors, while sectors like lithium batteries, real estate, and semiconductors have mostly completed supply-side reforms, with price wars easing and capacity control tightening and leading companies in the industries reducing fixed asset investments, entering a new phase of supply-demand recovery, it said.
The report identified policy uncertainty following the Republican Party’s ascent in the U.S. as a factor increasing market unpredictability, and in addition, while the Federal Reserve may continue its rate-cutting cycle, changes in inflation expectations could affect capital market performance, underscoring the need for vigilance on global central bank policies.
It projects an annualized return of 7.8% for Chinese equities over the next 10-15 years in USD terms and 6.6% in RMB terms, reflecting an implied expectation of RMB appreciation against the USD.
Even after the sharp rebound in Chinese equities in September, the market offers cyclical opportunities with attractive valuations, it said.
The report foresees rising corporate profit margins and abundant investment opportunities in China’s equity market, where active management can deliver excess returns.