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JPMorgan ditches call to buy Chinese stocks, citing 'Tariff War 2.0' risk
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JPMorgan ditches call to buy Chinese stocks, citing 'Tariff War 2.0' risk
Sep 6, 2024 12:49 PM

LONDON (Reuters) - JPMorgan has ditched its buy recommendation on Chinese stocks, warning of the risk of a second tariff war after November's U.S. election and citing worries about the country's growth.

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

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

"China equities could see heightened volatility around the upcoming U.S. elections," JPMorgan analysts, including Pedro Martins, said in the note.

"The impact of a potential 'Tariff War 2.0' (with tariffs increasing 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% since hitting a record high in 2021, with the country increasingly in economic conflict with the United States and suffering from a property crisis.

Survey data over the weekend showed China's manufacturing activity sank to a six-month low in August. And weaker-than-expected second-quarter growth called into question China's ability to hit its 5% GDP target this year.

BY THE NUMBERS

JPMorgan said U.S. tariffs of 60% on Chinese products, as Republican presidential candidate Donald Trump has suggested, may reduce China's GDP growth by two percentage points from its current forecast of 4% year-on-year in 2025, excluding any policy responses.

The bank said it now expects full-year growth in 2024 to come in at 4.6%, below the 5% target.

WHAT'S NEXT

Investors will scrutinise Chinese economic data and hope for a bigger stimulus response from Beijing than the existing reductions to borrowing rates. Inflation and trade balance figures are due next week.

GRAPHIC

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