JPMorgan: China Stock Screens Under Four Stimulus Scenarios
nashnova research
J.P. Morgan maps four fiscal-stimulus paths for China, each pointing to a sharply different stock playbook — from AI infrastructure names to high-dividend defensives to micro-caps — with the outcome hinging on how much policy actually delivers.
What does the base case bet on?
J.P. Morgan's base case: fiscal policy stays within the approved budget — a measured "catch-up," supportive rather than expansionary.
The core framework is the "Six Networks" — computing power, electricity grid, water, underground pipes, telecoms, logistics — with over ¥7 trillion in planned investment for 2026 alone.
This means → the money flows into infrastructure, not consumer handouts. Whoever sits closest to these buildouts gets orders first.
Computing power is where investor conviction is strongest: China's data-centre capex is projected to rise from $55–69 billion in 2026 to $95–151 billion by 2029, totalling over ¥4 trillion across the 15th Five-Year Plan.
Which stocks does the base case pick?
The screen targets companies with funded, policy-aligned capex exposure.
Preferred domestic AI supply-chain names: Tianshu Zhixin (HK-listed), Weitest (A-share), JCET (A-share), AMEC (A-share), and Naura (A-share).
This reflects J.P. Morgan's view that computing-power infrastructure is the highest-conviction thread across all four scenarios, backed by positive channel checks.
If stimulus overshoots, who rallies hardest?
The bull case assumes policymakers break through the approved budget, adding central or quasi-fiscal support with stronger property-completion and consumption measures.
In September 2024's broad rally, the leaders were home appliances, autos, property developers and agents, second-tier baijiu, and select building-materials stocks — all showing far higher upside beta (upside beta = how much a stock rises when the market rises) than laggards.
In plain terms = when a stimulus surprise hits, tech is not the top performer — the biggest gainers are names tied directly to consumer spending and housing.
A key prerequisite: export growth must first slow to the mid-single digits. If exports stay strong, the case for large-scale stimulus weakens.
What if fiscal delivery keeps disappointing?
The bear case assumes bond proceeds and policy-bank funds enter projects slowly, land revenue stays thin, matching funds are scarce, and expected policy impulses get delayed.
This means → the market shifts to defence, chasing low valuation + positive free cash flow + high dividends.
Screen criteria: MSCI China constituents, 3-month average daily turnover above $30 million, trailing P/B below 1.5×, positive FCF, dividend yield above 4%, and positive consensus EPS growth for 2026/27.
Results cluster in insurers (Ping An, China Life, PICC), select banks (Bank of China, CMB, PSBC), and energy and consumer staples.
Rate cuts alone — who benefits?
If fiscal policy stays put and only monetary easing continues — lower policy rates, ample interbank liquidity — back-tests show micro- and small-cap stocks lead over three months.
At the six-month mark: WAND Micro-Cap Index median gain of 9.5%, CSI 1000 up 5.0%, CSI 300 Value Index down 2.5%.
In plain terms = rates fall but fiscal firepower never arrives — large-cap blue chips get no bid, and money chases higher-beta small names. This pattern tends not to last.
When does the market get its answer?
Three catalyst windows: the Fifth Plenum in October, the Central Economic Work Conference in mid-December, and the Two Sessions in early March 2027 — stimulus speculation will cluster around these dates.
Four near-term caution flags: possible monetary tightening, deteriorating Asian cycle indicators, rising risk aversion ahead of U.S. midterms, and no fresh earnings catalyst before Q3 results.
Non-AI top picks: Meituan, Bank of China (HK), Bank of Ningbo, CICC (HK), Innovent Bio, BYD (HK), and China Resources Land.
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