JPMorgan China Market Strategy: Theme Rotation into Financials, Commodities and Healthcare; Earnings-Backed Alpha Screens
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JPMorgan argues Chinese AI names remain attractive entry points in September, but sources of alpha are broadening. A two-track framework tests whether crowded sectors' EPS growth can absorb valuation compression and whether underweight sectors' earnings acceleration supports position rebuilding, viewed through price momentum, onshore mutual-fund holdings, offshore positioning and fundamentals. MXCN/CSI-300 IT FTM EPS growth of 46%/52% can cushion P/E compression from a bear-flattening US Treasury curve. The bank stays constructive on AI, preferring the onshore supply chain—Iluvatar CoreX (H), V-Test, JCET, AMEC and NAURA—while also liking healthcare, brokers, shipping, ports, logistics and chemicals, screening A-shares with two consecutive quarters of earnings acceleration and improving operating cash flow in 2Q26. Positioning is extreme: onshore active funds' IT allocation reached 46% in 2Q26 (28% in December 2025), 3.9 standard deviations above the historical mean, while consumer discretionary, staples and healthcare sit 3.3/1.8/1.5 SD below. A-share momentum shows upstream improvement—paper and forest products, building products and coal at 100, chemicals 94—while airlines and autos fell to 0, beverages to 5 and pharma to 16. Offshore long-onlys added Chinese financials, cyclicals and defensives in 2Q26; CTAs are likely most short China. Apple's September 9 launch is a key smartphone-chain checkpoint.