JPMorgan Sees MSCI China Rebounding 14% as Sell-off Is Overdone

(Bloomberg) -- The MSCI China Index should rise in coming months, supported by policy easing and a more stable yuan, according to JPMorgan Chase & Co.

The bank’s head of China equity strategy Haibin Zhu expects the gauge to reach 95 by the end of 2018, representing 14 percent upside from Tuesday’s close. “The stock market crash is overdone,” he said in an interview Monday.

China’s economic growth isn’t as bad as some investors have priced in, as property and manufacturing investment held up well, while policy easing could lead to a recovery in infrastructure spending in the second half, Zhu said. Worries over the weaker Chinese currency should also ease, as the central bank is taking action to stabilize the yuan, he said.

Chinese stocks have fallen behind global peers this year, weighed by factors including a trade dispute with the U.S. The MSCI China Index dropped 6.8 percent since the start of the year, while the MSCI World Index is up 3.8 percent. The Shanghai Composite Index is among the worst performers globally.

A recovery window could open in the coming months. JPMorgan expects the yuan to stand at 6.87 against the dollar by year-end, representing a less than 1 percent decline from its level now, according to a note Sunday. That would mark a sharp slowdown of a slide that saw the yuan depreciate around 8 percent since end-March to be Asia’s worst-performing currency.

Corporate results have also been largely in line. Even so, the bank revised down its year-end MSCI China target from 98, after earnings misses by hardware makers such as Sunny Optical Technology Group Co. and e-commerce operators including JD.com Inc.

Zhu prefers companies that will benefit from China’s focus on infrastructure spending, such as railway operators and materials producers. He also likes health-care and consumer stocks, and expects them to perform well in the next six to 12 months.

To contact the reporter on this story: Jeanny Yu in Hong Kong at jyu107@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Will Davies, Philip Glamann

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