Skip to main content
logo
  • Funds

    Fund Listing

    • Fund Explorer
    • Fund Distribution
    • Fund Documents

    Capabilities

    • Equities
    • Fixed Income
    • Multi-asset

    Featured Funds

    • Income Solutions
    • Sustainable Infrastructure Fund
    • Future Transition Multi-Asset Fund
    • Provident Fund
  • Insights

    Market Insights

    • Market Insights Overview
    • Guide to the Markets
    • Weekly Market Recap
    • On the Minds of Investors
    • Guide to China
    • Multimedia

    Retirement Insights

    • Retirement Insights Overview
    • Principles for a Successful Retirement
    • Building Better Retirement Portfolios
    • Are you letting volatility derail your retirement plan?
  • Investment Ideas
    • What's new
    • Managing Volatility
    • Retirement and long-term investing
    • Sustainable Investing
  • Personal Investing

    Knowing the Basics

    • Mutual Funds 101
    • Taking the First Step in Investing
    • Ways to Diversify Your Portfolio
    • Investing for Your Children’s Future
    • Retirement Planning

    Getting Started

    • Start Investing
    • Investment Ideas
    • Invest regularly: Monthly Fund Investment
    • eTrading Privileges
    • Open an Account Online with Ease
  • Retirement Services
    • ORSO Services
    • MPF Services
    • Retirement Fund Centre
  • Resources
    • About Us
    • Awards
    • Contact Us
    • Announcements
    • Forms & Literature
    • Investment Return Calculator
    • Insights App
    • JPM Bot
    • FAQ
  • Library
  • Language
    • English
    • 中文/ Chinese
  • Role
  • Country
  • eTrading Login
    Open an Account
    Search
    Search
    Menu
    You are about to leave the site Close
    J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
    CONTINUE Go Back
    1. Our views on the current A-share rally

    On the Minds of Investors

    14/07/2020

    Marcella Chow

    Chaoping Zhu

    Our views on the current A-share rally

    China’s stock markets have been experiencing a strong rally since last week, and the upward momentum seems to be building further. We see five key drivers for the recent rally.

    Firstly, recent state media’s stance: Last Monday’s front-page editorial in the state-owned China Securities Journal said it was important to foster a “healthy bull market”. China’s CSI 300 index surged to a record five-year high while both the daily turnover and the balance of margin financing for the A-share market picked up significantly, indicating strong retail demand for stocks. In view of the rally’s abnormal speed, Chinese officials’ stance switched to a more rational tone in the last few days in an attempt to engineer a steady bull market. A pair of government-owned funds announced plans to trim holdings of stocks while the state media warned about the dangers of a ‘crazy’ bull market. In addition, according to the financial regulators of the Financial Stability Development Committee, China will show ‘zero tolerance’ towards securities and accounting fraud and will step up crackdowns on major capital-market crimes.

    Secondly, the change in inter-regional allocation: With the virus under control domestically, coupled with improving corporate earnings and better economic data, some investors have developed a temporary preference for the Chinese equity markets, where the pandemic risk appears to be more effectively contained. Northbound flows into A-shares via the Stock Connect have risen meaningfully in the past few weeks, suggesting a more bullish sentiment among foreign investors.

    Thirdly, further A-share inclusion as FTSE Russell increased the A-share inclusion factor from 17.5% to 25%, with A-shares now representing ~6% of the FTSE Emerging Index. This helped to build momentum for more passive inflows.

    Fourthly, a liquidity-driven rally and the fear of missing out: Recent global quantitative easing policies and rising domestic savings have led money managers to gravitate toward A-shares. Since 2019, domestic household deposits have grown at a rate of 13-14% year-over-year, amid ongoing property market controls and precautionary motives during the economic downturn. Further, in the past few months, shutdowns and fears over jobs have led domestic households to increase their savings. According to the People’s Bank of China (PBoC), household deposits rose to RMB 88trillion (tn) at the start of May, compared to less than RMB 82tn in December. Hence, when the A-share rally started, many rushed in with the fear of missing out. 

    Finally, a change in investor behavior: Millennials have grown to become the new generation of onshore investors. They have less experience in the market, may be more willing to take risks, have less family burden, and perhaps a greater eagerness to buy property. This change in investor behavior might also partially explain the recent quick onshore rally.

    EXHIBIT 1: Volatility of Chinese markets highlights the importance of international diversification

    Source: Bloomberg, FactSet, MSCI, J.P. Morgan Asset Management. Domestics equities are represented by each market’s respective MSCI equity index. *Return data of China onshore and offshore equities start from January 2005. **60/40 equity and fixed income portfolio consists of 30% domestic equities + 30% global equities (represented by MSCI AC World Index) + 40% global fixed income (represented by Bloomberg Barclays Global Aggregate Index).
    Data reflect most recently available as of 30/06/20.

    Investment implications

    For the real economy, the wealth effect of surging stocks could encourage more consumer spending, helping underpin the economic recovery. The recent rally should also lead to an increase in business investment amid improving investor sentiment and easier access to funding through Initial Public Offerings and refinancing.  However, the strong surge in Chinese equities may prevent authorities from continuing its policy easing, which is necessary for a recovery from the COVID-19 shock.

    The recent rally has brought up uncomfortable parallels with the 2015 A-share bubble. However, the backdrop in terms of global policy stance and valuations are quite different. Back in 2015, the Federal Reserve was planning for a liftoff in the federal funds rate, while the PBoC was contracting its monetary base and draining its credit support. This is in contrast to the current ongoing massive policy easing, which should be conducive for growth and asset prices. Also, unlike 2015 where valuations were expensive (22.5x, at the peak on June 15, 2015), current CSI 300 index valuations are much more reasonable at 18.2x compared with the long-term 10-year average of 14.0x. Obviously the recent quick rise may imply some pressure in the near term. However, the regulators are taking actions to crackdown on over-the-counter margin trading activities to prevent the market from becoming overheated.

    We remain constructive on Chinese equities as we continue to see pockets of opportunities. However, as the uncertainties sustain within the global and local economy, investors need to be selective and focused on fundamentals. Moreover, as seen in Exhibit 1, the volatility in returns of Chinese markets highlight the importance of international diversification.

    There are also a few downside risks that investors should pay attention to. First is the potential second wave of coronavirus infections. Any uptick in coronavirus cases may again pose a risk to domestic consumer sentiment, bringing headwinds to small and medium-sized enterprises and export-oriented firms. Secondly, geopolitics remains a constant risk for the markets, especially any significant escalation in U.S.-China tensions as we approach the last 100 days of the U.S. presidential elections. Lastly, the August interim results will be critical in assessing individual company’s upside and downside risks. Investors are advised to continue taking a more active approach in sector and company selection. 

     

    0903c02a82960845

    FEATURED INSIGHTS

    Weekly Market Recap

    Start every Monday morning with a one-page snapshot of top headlines, market performance, and chart of the week.

    Read more

    Guide to the Markets

    The Guide to the Markets illustrates an array of market and economic trends using compelling charts, providing the building blocks to support conversations with your clients.

    Discover more

    Guide to Alternatives

    This is a sister publication to the Guide to the Markets, delivering insights on macro topics like fundraising and manager dispersion, while also diving into real estate, infrastructure & transport, private credit, private equity and hedge funds in detail.

    Read more

    The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions. 

    For the purposes of MiFID II, the JPM Market Insights and Portfolio Insights programs are marketing communications and are not in scope for any MiFID II / MiFIR requirements specifically related to investment research. Furthermore, the J.P. Morgan Asset Management Market Insights and Portfolio Insights programs, as non-independent research, have not been prepared in accordance with legal requirements designed to promote the independence of investment research, nor are they subject to any prohibition on dealing ahead of the dissemination of investment research.

    This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

    J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

    To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://am.jpmorgan.com/global/privacy.

    This communication is issued by the following entities:

    In the United States, by J.P. Morgan Investment Management Inc. or J.P. Morgan Alternative Asset Management, Inc., both regulated by the Securities and Exchange Commission; in Latin America, for intended recipients’ use only, by local J.P. Morgan entities, as the case may be. In Canada, for institutional clients’ use only, by JPMorgan Asset Management (Canada) Inc., which is a registered Portfolio Manager and Exempt Market Dealer in all Canadian provinces and territories except the Yukon and is also registered as an Investment Fund Manager in British Columbia, Ontario, Quebec and Newfoundland and Labrador. In the United Kingdom, by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions, by JPMorgan Asset Management (Europe) S.à r.l. In Asia Pacific (“APAC”), by the following issuing entities and in the respective jurisdictions in which they are primarily regulated: JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited, each of which is regulated by the Securities and Futures Commission of Hong Kong; JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; JPMorgan Asset Management (Taiwan) Limited; JPMorgan Asset Management (Japan) Limited, which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia, to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Commonwealth), by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919). For all other markets in APAC, to intended recipients only.

    For U.S. only: If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance.

    Copyright 2023 JPMorgan Chase & Co. All rights reserved.

    • Market Insights
    lets-solve-it-logo

    For more information, please call or email us. You can also contact your J.P. Morgan representative.

    (852) 2978 7788

    agents.info@jpmorgan.com

    J.P. Morgan Asset Management

    • Terms of Use
    • Privacy Statement
    • Cookies Policy
    • Investment Stewardship
    • Fund Notes
    • Offering Document(s)
    • Forms & Literature
    • Complaint Resolution
    • Guide to Using This Website
    • Sitemap
    • Download Insights App

    J.P. Morgan

    • J.P. Morgan
    • JPMorgan Chase
    • Chase

    The information contained herein is intended only for use by Hong Kong residents. By using this information, you are representing and warranting that you are either residing in Hong Kong or the applicable laws and regulations of your jurisdiction allow you to access the information, and you confirm that you accept the Terms of Use as set out in https://am.jpmorgan.com/hk/. Investment involves risk. Past performance is not indicative of future performance. In particular, funds which are invested in emerging markets and smaller companies may involve a higher degree of risk and are usually more sensitive to price movements. Investors should carefully read and consider the fund offering document(s), which contain details on investment objectives, risk factors, charges and expenses of the fund, before making any investment decisions. Investors should read carefully the fund notes before making any investment decisions. Information in this website does not constitute investment advice, or an offer to sell, or a solicitation of an offer to buy any security, investment product or service, nor a distribution of information for any such purpose. Opinions and statements of financial market trends set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. Investors should conduct their own verification. The views and strategies described may not be suitable for all investors. This website and the advertisements contained herein are issued by JPMorgan Funds (Asia) Limited. This website has not been reviewed by the Securities and Futures Commission of Hong Kong ("SFC"), with the exception of material relating to the JPMorgan Provident Plan that the SFC has pre-approved (however such pre-approval does not imply official recommendation by the SFC).

    Apple, the Apple logo, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc.

    Copyright 2023 JPMorgan Funds (Asia) Limited. All rights reserved.