JPMorgan strategists have upgraded their rating on China A-shares to "overweight," citing multiple emerging growth drivers that make substantial market gains more likely than significant declines next year.

The report highlights that "multiple incremental catalysts are turning positive," including broader AI adoption and consumer stimulus measures. Supported by policy tailwinds, accommodative liquidity, and governance reforms, Asian equities are positioned for moderate-to-strong returns. While AI-related stocks show some binary characteristics, the overall outlook remains positive. The firm set its MSCI Asia ex-Japan index target at 1,025, implying ~15% upside from Wednesday's close.

JPMorgan maintains overweight positions in mainland China, Hong Kong, South Korea and India, while holding a neutral stance on Taiwan and underweighting Southeast Asian markets. "Chinese equities have partially retraced this year's outperformance, creating an attractive entry point," wrote strategists including Rajiv Batra. "Next year will see multiple supportive factors including AI applications, consumption measures and governance reforms."

In its separate 2026 outlook, JPMorgan's China equity strategy team maintained a constructive view on the CSI 300, projecting a year-end 2026 target of 5,200 under baseline scenarios. The team identified four key investment themes: 1) Implementation of "anti-involution" policies 2) Growth in global AI infrastructure/commercialization 3) Improved developed-market macro conditions benefiting exports 4) K-shaped consumption recovery plus potential property sector reforms

The team screened A-shares in IT and healthcare sectors based on market cap, average daily turnover and overseas revenue exposure to identify companies best positioned to capture China's innovation opportunities, anticipating a rotation from value to growth stocks by early 2026.

Additionally, the report identified sector leaders (market cap >$1B) in autos, battery materials, lithium, solar, cement, chemicals, coal, steel, dairy, pork, baijiu and logistics that may benefit from "anti-involution" trends. The analysts noted China's competitive landscape is gradually shifting from price/scale competition to quality competition - a transition that may unfold over a decade.