JP MORGAN CHASE(US:JPM) Zhong Guo Jing Ying Bao·2026-02-06 10:55Core Viewpoint - The Chinese stock market is expected to see improved foreign investment allocation in 2026, driven by reasonable valuations, a stable currency, and strong innovation capabilities in AI and other fields [1][2]. Group 1: Market Positioning and Fund Allocation - Despite global active funds being underweight in China, there has been a marginal improvement in allocation, particularly among global and Asia-Pacific funds [2]. - As of December 2025, the allocation of Chinese stocks in global (including U.S.) active equity funds is approximately 3.1%, while it is 9% in Asia-Pacific excluding Japan, 29% in emerging market funds, and 32.7% in Asia excluding Japan [2]. - The underweight position in Chinese stocks for global (including U.S.) active equity funds is 1.8%, and for Asia-Pacific excluding Japan, it is 2.4% [2]. Group 2: Valuation and Performance Expectations - The MSCI China index is currently valued at a price-to-earnings (P/E) ratio of 12.5, which is relatively reasonable compared to the MSCI Asia-Pacific and Asia excluding Japan, which have P/E ratios of 15.3 and 13.9, respectively [3]. - The expected earnings growth for the MSCI China index is 12.3% this year, with the CSI 300 expected to grow by 18%, suggesting potential benchmark targets of 100 and 5200 for these indices [3]. Group 3: Real Estate and Consumer Market Insights - The ratio of residential property value to GDP in China is 1.8 times as of the end of 2025, lower than the historical median of 2 times since 1998, indicating room for stabilization in the real estate market [3]. - The cost of purchasing homes has significantly decreased compared to 2021, and there are signs of policy easing in first-tier cities that could stabilize property prices and boost consumer spending [3]. - China's household consumption market is valued at $7 trillion, with a decrease in household debt to GDP ratio from 62% in 2021 to 59.4% by the end of 2025, indicating a healthier financial environment for consumers [4]. Group 4: Investment Opportunities in Key Sectors - Key investment sectors identified include technology, consumer goods, and exports, with a focus on AI and its ongoing growth potential [5]. - The essential consumer sector is noted for its low valuations compared to markets in the U.S., Japan, and India, with a focus on the food and beverage industry, which is seen as undervalued and having room for innovation [5]. - Other themes to watch in 2026 include export stocks, the impact of reducing excessive competition on profitability, and AI infrastructure developments that have not yet been fully priced in [5].