JPMorgan calls for "overweight" on China: Buy on dips, strong gains expected next year!

JPMorgan has upgraded its rating on Chinese stocks to "overweight," stating that the prospects for substantial gains next year now outweigh the risk of significant losses.

"Chinese equities have given back some of their excess gains from earlier this year, creating a highly attractive entry point," wrote the bank's strategists, including Rajiv Batra, in a report released on Wednesday. "There will be multiple supportive factors next year, such as the application of artificial intelligence, consumption measures, and governance reforms."

JPMorgan's positive shift comes after Chinese stocks retreated from multi-year highs reached about a month ago. The MSCI China Index has fallen 6.2% this quarter, while the broader MSCI Asia Pacific Index has risen 1.3%.

Rajiv Batra and his colleagues had advised investors to buy Chinese stocks in early April. Since then, the MSCI China Index has risen by about 33%, while the Asian benchmark index has gained 37%.

They wrote in the report that the Chinese stock market is still in the early stages of recovering from the downward cycle that began at the end of 2020, so "valuations remain acceptable and positions are still relatively light."

JPMorgan strategists stated that optimism about China, combined with policy support, ample liquidity, governance reforms, and net positive guidance from AI-weighted stocks, means that Asian equities are most likely to deliver moderate to exceptional returns next year.

Matthew Quaife, Head of Global Multi-Asset Investment at Fidelity International, also said that looking ahead to 2026, he is more optimistic about China's stock market, especially bullish on the technology sector; international investors are returning to China, and the recent market pullback is actually a good opportunity to increase exposure to China's technology sector. Regarding the bond market, Quaife believes that when international bond markets experience volatility, Chinese bonds are a relatively safe haven.

JPMorgan expects the MSCI Asia (excluding Japan) Index to potentially climb to 1,025 points next year, which would be an increase of about 15% from Wednesday's closing price. According to the report, the bank is overweight on China, Hong Kong, South Korea, and India; neutral on Taiwan; and underweight on Southeast Asia.

Wei Jixing, Chief Strategy Analyst at Kaiyuan Securities, also pointed out that since the end of June, A-shares have continued to rise, and the current pullback falls within the range of normal fluctuations. In terms of the magnitude and duration of the adjustment, it is still within the reasonable range of historical bull market corrections.

Looking back at past bull markets, the upward process is often accompanied by style shifts and periodic adjustments, and after adjustments, the probability of the original style continuing is slightly higher than that of a style switch. If the market continues the previous growth style after this round of adjustment, it is recommended to focus on potential "high-to-low rotation" opportunities within the technology sector, including military industry, media (gaming), AI applications, Hong Kong-listed internet companies, and power equipment.

Looking ahead to 2026, Kaiyuan Securities expects market styles to become more balanced. On one hand, the technology sector still has medium- to long-term allocation advantages; on the other hand, pro-cyclical sectors will also present certain investment opportunities. At the same time, the dividend style is expected to perform better in 2026 than in 2025 and is worth attention.