JPMorgan China Local Markets Weekly: Going Long CNH Again; Preferring Curve Flattening
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JPMorgan's China local markets weekly (September 11, 2026) re-establishes a long CNH position versus USD and EUR (entry 100, target 102, re-check 99) and adds a curve-flattener — long 30-year CGBs against paying 5-year NDIRS (entry 66bp, target 50bp, re-check 75bp). In the GBI-EM model portfolio, CNY FX moves to overweight while CNY bonds stay market weight. The bank sees only fragile stabilization near end-Q3: bill financing rates have not rebounded since April's sharp decline, signaling weak underlying credit demand despite policy easing. Chinese equities, especially tech-heavy indices, have lagged global peers as leadership rotated to financials, commodities and healthcare, though equity strategists remain constructive on structural AI and tech names. Roughly 40% of the annual CGB quota is still to be supplied; faster issuance drains liquidity before lifting growth, adding to Q4 seasonal tightening risk. Regulators announced a RMB360bn recapitalization of eight financial institutions, RMB300bn directly from the Ministry of Finance; banks and insurers hold nearly 70% of outstanding CGBs (about 65% before the last round), supporting long-end demand. USD/CNH fell over 1% in Q3, turning carry-adjusted returns positive, and the PBoC fixing broke below 6.78. The year-end USD/CNY forecast stays 6.70 with downside risk ahead of President Xi's expected late-September US visit.
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