Citi and JPMorgan cited China's value stocks as a defense against tariff risks

The new escalation of trade tensions between China and the U.S. is a reason for investors to shift some investments from growth stocks to relatively inexpensive and protective segments of the Chinese stock market, analysts at JPMorgan Chase and Citi said. They advised clients to buy securities of Chinese banks with stable profits and a history of dividend payments, as well as to take a closer look at dividend-paying companies focused on the huge domestic market.

Citi analysts recommend investing in shares of domestic-oriented Chinese companies, considering them a relatively safe choice after the rally in China's stock market was replaced by a correction due to the risks of increasing duties, Bloomberg writes. The agency also reported that JPMorgan Chase urged clients to pay attention to the shares of Chinese banks with stable profitability and stable dividend payments.

In the coming weeks, China's stock market may begin to rotate from growth stocks (companies with high business expansion potential but often overvalued) to value stocks (players with solid financial performance), said Hao Hong, chief investment officer of Lotus Asset Management, on October 13. The yield gap between these two types of securities is close to a record high and will soon start to return to average values, he said.

Macquarie Capital advised investors to move out of stocks that have shown inertial growth and into securities of companies that may benefit from China's consumption stimulus. "Investors should sell high beta brokerage, pharmaceutical and semiconductor stocks (with volatility above the market average - Oninvest) and move into consumer stimulus-related securities such as non-essential goods manufacturers," Macquarie analyst Eugene Xiao wrote.

Chinese stock indices collapsed from 10-year highs on October 13. The sell-off began after U.S. President Donald Trump threatened to impose additional 100 percent duties on imports from the country in response to Beijing's imposition of large-scale restrictions on exports of rare earth metals and other critical raw materials.

Nevertheless, some segments of growth stocks remain attractive - especially those associated with China's efforts to localize production, notes Bloomberg. Thus, quotations of Chinese chip makers on October 13 rose against the general trend amid expectations that trade tensions will strengthen Beijing's desire for technological self-sufficiency and reduce dependence on imports from the United States.

The PRC market has already shown stability, the agency notes. The decline was moderate compared to the collapse in April, when Trump first announced the size of duties. In addition, after the morning sell-off, indices were able to recover some of the losses. A sharp rebound in the second half of the trading day indicates active buying on the fall, Bloomberg writes.

This article was AI-translated and verified by a human editor