JPMorgan drops call to buy Chinese stocks, citing ‘Tariff War 2.0’ risk By Reuters

By Harry Robertson

LONDON (Reuters) – JPMorgan dropped its buy recommendation on Chinese shares, warning of the risk of a second tariff war after November’s U.S. election and citing concerns about the country’s growth.

The bank downgraded China to “neutral” from “overweight” in a note on Wednesday and advised investors to add to bets on countries such as India, Mexico and Saudi Arabia.

WHY IT’S IMPORTANT

China’s economy is stumbling – by its standards – and the country is struggling to attract global investors, who have moved heavily into other emerging markets such as India.

KEY QUOTE

“Chinese stocks could see increased volatility around the upcoming US election,” JPMorgan analysts including Pedro Martins said in the note.

“The impact of a potential ‘Tariff War 2.0’ (with tariffs rising from 20% to 60%) could be more significant than the first tariff war.”

CONTEXT

China’s CSI 300 stock index has fallen more than 40 percent since hitting a record high in 2021 as the country grows increasingly at economic odds with the United States and suffers from a housing crisis.

Survey data over the weekend showed that China’s manufacturing activity fell to a six-month low in August. And weaker-than-expected growth in the second quarter cast doubt on China’s ability to meet its target of 5 percent of GDP this year.

BY NUMBERS

JPMorgan said 60 percent U.S. tariffs on Chinese goods, as suggested by Republican presidential candidate Donald Trump, could cut China’s GDP growth by two percentage points from its current forecast of 4 percent annually in 2025, ruling out any response political.

The bank said it now expects full-year growth in 2024 to reach 4.6 percent, below its 5 percent target.

WHAT’S NEXT

Investors will be scrutinizing Chinese economic data and hoping for a bigger stimulus response from Beijing than existing loan rate cuts. Inflation and trade balance figures are due next week.

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