China will no longer lift all boats, so investors must place bets carefully, look across Asia: JPMorgan private banker

Holding cash is becoming less attractive, while select areas in China and bonds are becoming better investment opportunities, according to JPMorgan’s private banking head.

Investors cannot ignore China, but they should be selective about their allocations going into the new year, according to Alex Wolf, managing director and head of investment strategy for Asia at JPMorgan Private Bank.

“The big question is whether China can reflate the economy and escape the deflationary loop,” Wolf said. “Risks are equally skewed to the upside and downside. Nonetheless, China is not going to be the tide that lifts all boats as it used to.”

JPMorgan, which manages US$2.5 trillion in assets, said clients are holding significantly more cash than they did two years ago: at least US$120 billion more in short-term money-market funds and treasury bills.

It follows a global trend of investors stockpiling cash. Investors had US$5.6 trillion in money-market instruments in 2023 in the US, according to Morningstar.

Investors have been taking advantage of high interest rates, while uncertainty in China drove investors out of capital markets. The MSCI China Index lost more than 14 per cent in 2023, trailing most of its global peers, and its valuation fell below its five-year average.

Amid the uncertain environment, clients have been forced to stay on the safe side with dividend-paying stocks and bonds.

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“We like onshore listed companies that could benefit from government policy,” Wolf said. “High-dividend companies is an area of focus, as well as telecommunications and gaming.”

The video gaming sector could still face some headline risk, but this should decline gradually, he said.

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The energy sector and companies targeting discretionary consumer spending could see some upside in China, Wolf said.

Overall, the Asia outlook is defined by the desynchronised nature of its cycle; increasingly the region is facing larger divergence across economies, said Wolf.

Investors should be wary of “home bias” and remain open to looking at other markets to diversify their portfolios amid slower growth, weak inflation and ongoing risks in the property sector in China.

“In China, we still see challenges,” Wolf said. “The unwinding of the excesses in the property sector is likely to continue.”

It will take time for supply and demand to normalise, and “you still have to address how to deal with the indebted property developers”, he said.

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In the meantime, the bank is positive about economies with strength in semiconductors, like Korea and Taiwan.

India’s equity market also continues to be a bright spot. Corporate earnings have kept pace with gross domestic product (GDP) growth, a rarity in emerging economies, and thus stock returns have tended to grow in line with nominal GDP, Wolf said.