JPMorgan says A-share liquidity stable as AI stocks surge 43%

Chinese A-share liquidity remains healthy and AI hardware stocks have surged 43% since April, making any pullback a buying opportunity, JPMorgan said.

JPMorgan said Chinese equity market liquidity is stable and concerns over two large semiconductor IPOs are overdone, recommending investors buy AI hardware stocks on any pullback after the sector surged 43% since April.

"Market turnover and margin trading data suggest the liquidity backdrop remains constructive," JPMorgan strategists wrote in a June 4 report. "The selloff in AI hardware names creates a buying window for investors."

A-share turnover has held in a 5% to 6% range over the past month, with margin trading balances stable at about 10% of total turnover, the bank said. Hong Kong turnover recovered to 0.8% from 0.5%. The CSI STAR ChiNext 50 Index has rallied 43% since April, while the MSCI China Index fell 6.1%, a divergence JPMorgan attributed to AI-related hardware and semiconductor exposure — about 75% of the STAR ChiNext 50 versus 48% of the MSCI China gauge.

The bank dismissed fears that upcoming IPOs from CXMT and YMTC, each sized at 300 billion to 400 billion yuan, would drain liquidity, noting their combined size represents about 2% of daily A-share turnover, below the historical monthly average since 2013. Any short-term pullback from IPO-related jitters would be an opportunity to add hardware positions, JPMorgan said.

AI Divergence Drives Onshore Outperformance

The performance gap between onshore and offshore Chinese benchmarks since April maps closely to AI-related holdings, JPMorgan said. The STAR ChiNext 50 and ChiNext indexes — with about 75% and 56% AI hardware and semiconductor weights respectively — have returned 43% and 29%. The Hang Seng Index has been flat, while the MSCI China Index fell 6.1%, reflecting its lower 48% AI exposure and the drag from e-commerce and advertising businesses.

The rally has concentrated in AI infrastructure — hardware, components and capex-driven supply chains — while offshore internet platforms lagged on unclear AI monetization and weak ad revenue, the bank said. A rotation began in June as short-covering in Chinese internet and software names, triggered by a "SaaS doom" narrative reversal and Tencent's AI agent progress, helped rebalance positioning.

Fund Style-Drift Impact Called Negligible

JPMorgan simulated the impact of correcting style drift among onshore active equity funds, analyzing more than 150 funds with over 10 billion yuan each, representing 80% of the category. Assuming a 5% maximum benchmark deviation, the model showed financials would see net inflows of about 147 billion yuan, industrials 109 billion yuan and energy 45 billion yuan, while materials, consumer discretionary and healthcare would see net outflows of 119 billion yuan, 59 billion yuan and 16 billion yuan respectively.

Even the largest projected flow — 147 billion yuan into financials — is negligible against daily A-share turnover of 2 trillion to 3 trillion yuan, JPMorgan said. Fund companies are more likely to revise benchmark definitions than cut existing positions, the bank added.

Buybacks Slow, Dividends Rise

A-share buybacks totaled 990 billion yuan in the first five months of 2026, down 56% from 2.28 trillion yuan a year earlier, JPMorgan data show. Hong Kong buybacks fell 13% to 640 billion Hong Kong dollars. MSCI China dividends rose about 12% in 2025 to roughly $313 billion, representing about 2.6% of market capitalization.

The 40-day correlation between Chinese equities and the yuan has climbed to a three-year high this month, Bloomberg-compiled data show, as both assets advanced in April and May on AI enthusiasm and portfolio diversification flows.

JPMorgan said it remains overweight energy as an oil-price hedge and selectively positioned in quality growth stocks tied to younger consumers' health and wellness needs, alongside its core AI, energy security and robotics themes.

This article is for informational purposes only and does not constitute investment advice.