The boat is taking on water, better to set sail. China continues to send signals of an economy in difficulty and the stock markets are falling: even Jp Morgan has decided to throw in the towel and abandon its recommendation to buy Chinese stocks.
JPMorgan Chase & Co. cited high volatility around the upcoming U.S. election, as well as growth headwinds and tepid policy support, in downgrading China from “overweight” to “neutral,” analysts at the U.S. bank led by Pedro Martins wrote in a note. JPMorgan joins a growing chorus of brokers that have lowered expectations for China's stock market and follows similar moves by former bulls such as UBS Global Wealth Management e Nomura holdings in the last weeks.
The CSI 300 Index, the weighted stock market index of the 300 largest stocks traded on the Stock Exchange Shanghai and Shenzhen Stock Exchange, is hovering around parity today, but has lost 5,6% since the beginning of the year, one of the worst performances worldwide.
GDP fears: analysts doubtful about 5% target
La last week The manufacturing PMI index fell to 49,1 in August, compared to 49,4 in July and the 49,5 expected by analysts. According to data from the National Bureau of Statistics, this is the fourth consecutive month of contraction of the cycle below 50 and the lowest level since February 2024, confirming the persistent difficulties of the Chinese economy, unable to strengthen the recovery amid weak consumption, risks of deflation and a crisis in the real estate market. NBS analyst Zhao Qinghe attributed the latest contraction to high temperatures, heavy rains and the seasonal slowdown in production in some sectors. As for services, however, the non-manufacturing PMI index strengthened to 50,3 from the lows of the last 8 months in July (50,2), beating the previous day's estimates by 50.
But the data on the GDP: in the second quarter fell to 4,7%, after 5,3% in the previous quarter, below the consensus 5,1%. industrial production, at the same time, it showed signs of slowing down, settling at 5,3% in June from 5,6% previously, although in this case the figure was higher than expected (+4,9%). Decidedly weak data, which suggests the launch of further fiscal stimulus by the government and a loosening of monetary policy by the People Bank of China.
Meanwhile, a growing number of analysts are fearing that Beijing will fail to meet its official target of 5% growth. China already missed its 2022 annual growth target of 5,2% last year, when Covid lockdowns and sudden policy changes made that goal unattainable.
The weight of tariffs on the Chinese economy
“The potential for another trade war between Washington and Beijing could weigh on stocks,” JP Morgan writes, “while China's moves to rise up from its economic crisis remain disappointing. 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,” analysts wrote. “We expect China’s long-term growth to be structurally declining due to shifting supply chains, expanding US-China conflicts, and ongoing domestic issues.” Canada also announced 100% tariffs on Chinese-made electric vehicles in recent days, following the same decision by the United States, and to a lesser extent, the European Union.
