Chinese markets have some upside potential despite numerous challenges. But even if this materializes, the second-largest economy is no longer «the tide that lifts all boats», according to J.P. Morgan Private Bank’s head of Asia investment strategy, Alex Wolf.
China is currently undergoing numerous challenges. Property troubles remain and worries persist about its effect on the financial sector, which recently saw the fall of major shadow bank Zhongzhi. Consumer and business sentiments are poor. Geopolitical risks loom large. Despite the headwinds, J.P. Morgan Private Bank’s Alex Wolf noted that there are still reasons to be optimistic.
«While China faces a number of macro uncertainties, there are still investment opportunities,» said a note authored by Wolf, who is the bank’s head of Asia investment strategy.
Exports, Consumer
According to Wolf, there are various positive drivers, such as improvements in manufacturing and production innovations, that have increased China’s export market share. Chinese consumer companies are also seeing increased success abroad. Overall, the bank is cautious on offshore equities and prefers China's onshore market.
«For China, the big question is whether they can reflate the economy and escape the deflationary loop. Risks are equally skewed to the upside/downside,» Wolf added. «Nonetheless, China is not going to be the tide that lifts all boats as it used to.»
Other Markets
On other equity markets in Asia, the bank is positive on India, where the market is correlated to the local economy and one of the least correlated to China. It is also positive on select Japanese equities, as well as Taiwan and Korea due to the semiconductor cycle.
Globally, J.P. Morgan Private Bank prefers US and developed markets. Within fixed income, it advises investors to consider locking in higher yields with expectations of rate cuts in the second quarter or sooner if the economy and inflation meaningfully slows.
