JPMorgan forecasts the MSCI China Index to rise about 18% by the end of 2026, the CSI 300 Index about 12%, and the MSCI Hong Kong Index up to 18%. The outlook is driven by earnings recovery and Beijing's efforts to curb excess capacity. HSBC Private Bank targets 31,000 for the Hang Seng Index next year, a 22% gain from Tuesday's close.
At a media briefing on Tuesday, Wendy Liu, chief China equity strategist at JPMorgan, said earnings data is giving them confidence. China's markets are in a period of earnings recovery after a slump from 2021 to mid-2024 that discouraged investors and drove valuations to multi-year lows.
Liu noted that an intense price war in e-commerce and delivery sectors has masked underlying earnings improvements and weighed on the MSCI China Index this year, but it is expected to ease. Consensus earnings growth across the three indices is projected at 9 to 15% next year.
Meanwhile, Beijing's 'anti-involution' drive to reduce redundant capacity and unhealthy competition is set to support margin expansion, particularly in renewables and advanced manufacturing. Liu described this as a structural shift that could shape the next decade, fostering consolidation and stronger returns on equity.
JPMorgan also anticipates an eventual recovery in capital flows and property sentiment to bolster the MSCI Hong Kong Index. Despite US-China tensions, normalised valuations and boosted profitability in key sectors are seen as drivers for the rebound.