JP Morgan Private Bank: The valuation discount of Chinese technology stocks has already reflected policy risks

The market is concerned about the increase in value-added tax for the internet in mainland China. Feng Zhaobang, head of the Asian equity strategy department at JP Morgan Private Bank, stated that it is difficult to predict the likelihood, but believes that the valuation of Chinese tech stocks is at a discount compared to foreign tech stocks, with leading tech stocks still having more than a 10% gap from their high prices. Additionally, the performance of traditional economic stocks in Hong Kong has outperformed tech stocks in recent months, which he believes has reflected the policy risks.

He indicated a cautiously constructive view on the offshore Chinese market, recommending buying on dips, and noted that the medium-term outlook for Chinese stocks is relatively optimistic, supported by policies and applications of artificial intelligence. However, the momentum in the domestic market remains uneven. Currently, the bank advises against chasing the offshore Chinese stock market, but if a suitable entry point arises after a 5% to 8% pullback, a more aggressive strategy may be adopted. He prefers Chinese tech innovation stocks, high-quality dividend stocks, and consumer stocks with reasonable valuations that have underperformed the market.

He mentioned a neutral view on the onshore Chinese market, stating that the market has stabilized under targeted policy support. However, the recovery of the Chinese economy remains uneven. Despite strong catalysts from artificial intelligence and tech stocks, the correlation between A-shares and the overall economy is stronger, and the bank tends to buy on pullbacks, as the current valuation of mainland A-shares is relatively high