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
    • Global Equity Solutions
    • 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
    • Managing Volatility
    • Growth Strategy
    • Income Strategy
    • 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
    1. Things to watch out for that would reinforce confidence in Chinese equities

    • LinkedIn Twitter Facebook

    Things to watch out for that would reinforce confidence in Chinese equities

    4-minute read

    21/03/2022

    Tai Hui

    Stronger credit growth and more fiscal stimulus are needed to boost economic growth.

    Tai Hui

    Chief Market Strategist, Asia Pacific

    Listen now

    In brief

    • The Chinese authorities have acknowledged challenges undermining market sentiment and pledged to address them
    • COVID-19 and economic stimulus should be relatively quick to be implemented
    • There is no magic wand to boost investor confidence, but this is an important step to support Chinese equities

    The Chinese equity markets, both onshore and offshore, have struggled in 2021 and 1Q 2022. A combination of factors have contributed to this challenge. On March 16, the State Council’s Financial Stability and Development Committee has acknowledged these concerns and pledged to address them. This helped to boost market sentiment in the short term. The key would be to follow up with concrete actions, and here we discuss what we should watch out for investor confidence to improve.

    On the latest round of COVID-19 outbreak, the authorities have placed more emphasis on balancing between controlling the outbreak and limiting the economic impact from these measures. This does not mean the zero-tolerance measures would be abandoned in the near term, but there could be more policies tilting towards keeping factories in operations and reducing the lockdown period. For example, some restrictions were lifted seven days after Shenzhen went into lockdown. We continue to monitor the infection numbers both in terms of possible peak but also the breadth of new cases across the country. The zero-tolerance policy could see more room for change once the government sees the public are better protected by immunization or effective treatments.

    Meanwhile, we will also expect to see reductions in lending rates and reserve requirement in due course to boost growth. The key to watch is credit growth, which has yet to respond to previous rounds of monetary loosening. The benefit of fiscal stimulus is that it could provide a more immediate and more predictable boost to the economy. The Ministry of Finance has already announced to cut income tax for small firms from 25% to 20% from 2022 to 2024.

    The authorities have also pledged to manage the property sector’s systemic and financial risk. This could be focusing more on making mortgages accessible to home buyers and at cheaper rates. Direct support or bailout of troubled property developers does not look likely at this point.

    On potential delisting risk of American Depository Receipts (ADRs) issued by Chinese companies, the committee mentioned that it is working with the U.S. regulators with some progress. Meanwhile, media reports said that the Chinese regulators are looking into which financial audit information can be disclosed to foreign regulators. 

    Exhibit 1: Investors’ concerns have prompted valuation de-rating in Chinese equities
    MSCI China: Forward P/E ratio 

    Source: Bloomberg, MSCI, J.P. Morgan Asset Management.
    Price-to-earnings ratio based on next twelve months earnings estimates. Dividend yield based on next twelve months dividend estimates. Price-to-book based on trailing 12 months book value.
    Guide to China. Data are as of 28/02/22.

    Then we need to observe whether the U.S. regulator would be satisfied with such disclosure. Meanwhile, we can expect more of these companies to look for dual or secondary listing in other markets, such as Hong Kong, as a back up plan. Since the U.S. is the largest and deepest financial market in the world, being delisted there could affect market liquidity of these companies’ stocks. However, in the long run, we see the corporate fundamentals to be a key factor in driving return and delivering shareholder value.

    Another challenge weighing on Chinese equities have been regulatory reforms, especially on internet companies. We don’t expect the authorities to make a U-turn on regulating these companies’ business practices, especially monopolistic behavior or abuse of their market leadership to disadvantage employees or small businesses. The committee has pledged to be more transparent and predictable when introducing regulations. It remains to be seen how this would be executed in practice.

    Investment implications

    Although the Financial Stability and Development Committee’s comments provided some much-needed relief to the Chinese market, more concrete policies and results are needed to address investors’ skepticism and improve confidence.

    Amongst all these challenges, containing COVID-19 and implementing economic stimulus via various administrative measures could be the quickest to achieve in the next two to three months. Admittedly, Omicron’s ability to spread could mean infection numbers may stay elevated in the near term, but experience in other economies has shown that each wave typically subsides in two to three months. This could be shortened with China’s stringent containment policy, combined with its track and test capability. Of course, stronger credit growth and more fiscal stimulus are needed to boost economic growth.

    On regulation, the government will have to demonstrate being predictable and transparent when making changes in real life, and this could take time. Financial performance in quarters ahead would help investors to determine how these rule changes impact their long term earnings potential. Meanwhile, there are sectors with policy tailwinds that investors can consider. This includes areas such as renewable energy and decarbonization, as well as consumer goods and services that benefit from stronger income growth for the lower income group.

    Whether Chinese companies could avoid being delisted in the U.S. exchanges is harder to predict since this would involve the reaction and requirement from the U.S. regulator, as well as the concessions made by the Chinese authorities. This implies companies that have made contingency plans to be listed in a second market are in a better position to weather through volatilities. 

    09xv222203023922

    FEATURED FUNDS

    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.

    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.