JPMorgan Cuts China Stocks on Risks of Full-Blown Trade War
- Asian Market
- 2 months ago
The likelihood of a “full-blown trade war" next year between the world’s two largest economies made JPMorgan Chase & Co. the latest brokerage to drop its bullish call on Chinese stocks.
The trade conflict will only escalate as the U.S. maxes out tariffs on Chinese imports, the dollar strengthens and the yuan weakens further, JPMorgan strategists including Pedro Martins Junior, Rajiv Batra and Sanaya Tavaria wrote in a report, lowering their recommendation on China to neutral from overweight. With mainland markets shut all week for a holiday, the $4.9 billion iShares China Large-Cap ETF dropped to a two-week low in New York.
Still, that may not impede a relief rally in emerging markets, according to JPMorgan. The New York-based bank said double-digit earnings growth, an under-allocation to the asset class and a valuation discount to developed-market equities could spur near-term gains.
JPMorgan revised its forecast for economic growth in China next year to 6.1 percent from 6.2 percent. Without accounting for countermeasures, the trade war represents a 1 percentage point dent to growth, the strategists said.
"Higher tariffs are squeezing Chinese manufacturing’s profit margin, reducing the investment incentive and hiring, which would then drag on consumption via reduced income," they wrote.
Source : Bloomberg