(Bloomberg) — The swift decline in Chinese equities is “disconnected from fundamentals” and presents a buying opportunity for stock investors, according to JPMorgan Chase & Co.’s Marko Kolanovic.
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“We believe this is a good opportunity to add given an expected growth recovery, gradual COVID reopening, and monetary and fiscal stimulus,” Kolanovic, JPMorgan’s chief global markets strategist, wrote in a note to clients on Monday.
Kolanovic, who has been Wall Street’s most vocal bull this year, also expects the strong US dollar to give the relative earnings of international markets like Japan, the euro zone and UK’s FTSE 100 a boost.
In mid-March, JPMorgan analysts led by Alex Yao surprised the industry by issuing a report that called the Chinese internet sector “uninvestable” and downgraded 28 stocks including Alibaba Group Holding Ltd.
Read more: JPMorgan’s ‘Uninvestable’ Call on China Was Published in Error
Two months later, Yao upgraded the sector on an improved regulatory environment, but cut the price target on Alibaba in September over revenue concerns.
Although Kolanovic sees US equities primed for gains into year-end, he expects 2023 to be “a more challenging earnings backdrop relative to current expectations,” he said. “If there is a recession in 2023, the start, depth, and length of the contraction will determine the magnitude of earnings decline.”
Although earnings in the third and fourth quarters should confirm that “fundamentals remain anchored in resilient labor markets and COVID reopening,” the bank cut its 2023 earnings-per-share estimates for the S&P 500 Index to flat year-over-year. For the S&P 500, the bank is assuming that every 1% move up in the dollar represents a 0.5% hit to the benchmark’s cumulative profits, according to Kolanovic.
Kolanovic, voted the No. 1 equity-linked strategist in last year’s Institutional Investor survey, hasn’t had much success with his bullish calls so far this year. Over the summer he maintained that the US stock market was poised for a gradual recovery in 2022 and that the S&P 500 would likely end the year unchanged, repeatedly urging investors to buy the dip.
Last week, Kolanovic cut the size of his equity overweight and bond underweight allocations, citing increasing risks from central bank policies and geopolitics. Earlier this month, Kolanovic said such risks might put the bank’s year-end S&P 500 target of 4,800 at risk.
–With assistance from Yiqin Shen.
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