Nov 17, 2014
Hong Kong — J.P. Morgan is bullish on the outlook for the Chinese equity market in 2015. Pro-growth measures aimed at boosting the Chinese economy have created a market-friendly environment which is positive for equity investment.
In a report published today, Asian Year Ahead 2015 - Stock Ideas for the Year of the Goat, J.P. Morgan expects policy direction and cheap valuations to be dominant themes in the Chinese equity market. “You can think of it as QE with Chinese characteristics,” said Adrian Mowat, Chief Asian and Emerging Market Equity Strategist, and co-author of the report, adding that the declining real estate market and the launch of the Shanghai-Hong Kong Stock Connect scheme (SH-HK Stock Connect) will act as a catalyst in directing investment into the equity market.
“The J.P. Morgan Greater China Economic Research team predicts two RRR cuts in 2015. RRR cuts are likely to have the biggest market impact. Many A-share investors may be positioning ahead of the easing to reallocate away from a declining real estate market. The launch of the SH-HK Stock Connect platform enables more international investors to access A-shares,” said Mowat.
In terms of sector recommendations, China financials ex-real estate, telecom and internet as well as consumer staples will fare better. Building materials and real estate sectors will continue to be under pressure due to a drop in Chinese construction activities, flat steel demand and decline in residential property sales. The decreasing oil prices will result in a downgrade of Chinese energy stocks.
In Asia ex-Japan, J.P. Morgan has placed an overweight position for 2015 on India, Indonesia and Thailand, which will benefit from improving policy and lower oil prices. India remains the firm’s largest overweight in the region. The firm is underweight on Australia and Malaysia as a result of weakness in the commodities space. The link to US policy rates and cross border lending risk are some of the factors contributing to an underweight position on Hong Kong and Singapore.
“J.P. Morgan has an overweight rating on China and India, two of the largest economies in Asia. The Modi government has implemented policies to lower inflation and maintain a stable currency. We expect this to improve with rising business confidence and a more benign monetary environment,” said Mowat.