JPMorgan says China's economy will be more resilient in 2022 and picks stocks that could benefit

Published Mon, Dec 6 202110:46 PM EST

Although Chinese stocks have lagged peers by a large margin this year, JPMorgan is bullish on this market for 2022. The investment bank has flagged some key themes that could boost Chinese markets, and picked out some stocks that could play on those themes. The investment bank said in its 2022 China outlook report that Chinese equities have been among the "worse performers" in emerging markets and Asia-Pacific, year-to-date as of the end of November. MSCI China underperformed the MSCI Emerging Markets and MSCI Developed Markets indexes by 13% and 36% respectively. But, things may start looking up. JPMorgan expects annual revenue growth for listed Chinese firms it covers to rise from 3% in 2020, to 24% this year and 13% in 2022. In its base case, the bank said it expects upside of 23% in 2022 for China's CSI 300 index – the top 300 stocks listed in Shanghai and Shenzhen – from current levels. JPMorgan also said that China's "common prosperity" push and dual circulation policy will lead to structural reforms in the Chinese economy. The concept of common prosperity promotes supporting moderate wealth for all, while the country's dual circulation policy refers broadly to two circles of economic activity — internal and external — with greater emphasis than before on business at home. "If well executed, we believe these will foster a bed of recurring local demand drivers, making the economy more resilient on its own," the bank's analysts wrote. For instance, the common prosperity drive could boost wages for lower-income workers and lead to stronger consumption. JPMorgan also noted Beijing is building an ecosystem to support new economy companies in new energy vehicles and their suppliers, renewables and semiconductors. That includes targeted lending policies and increasing vocational education enrollment to fill the gap between a shortage of skilled blue-collar workers, and glut of graduates keen on white collar positions. The country is also moving the focus away from more traditional companies, such as real estate, JPMorgan said. The bank also said the country could possibly reopen next year. While acknowledging China's stringent zero-Covid approach, JPMorgan said "continuous development in anti-viral treatment" means that reopening in 2022 "appears likely." These are some stocks the bank is overweight, or bullish, on. Oil and related firms: PetroChina , Sinopec, Rongsheng Petrochemical New energy vehicles and related businesses: Shenzhen Inovance , CATL, Ningbo Ronbay New Energy, Tinci Materials Construction, industrial: China State Construction International , Sany Heavy Industry , Wanhua Chemical , China Resources Cement , Nine Dragons Solar, other environmental businesses: Sungrow Power Supply , China Conch Venture, Yunnan Energy New Material Aviation: Beijing Capital International Airport , Cathay Pacific Logistics: JD Logistics

Share prices of Chinese tech companies Baidu, Alibaba and Meituan among those shown at the Exchange Square in Hong Kong on March 23, 2021.

Paul Yeung | Bloomberg | Getty Images

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