JPMorgan stated in a report that given leverage ratios and valuations remain at moderate levels, the upward momentum in Chinese stock markets is expected to continue. The firm estimates that potential asset rotation could inject an additional 14 trillion yuan in liquidity into the stock market, equivalent to approximately 16% of the circulating market capitalization.
Analyst Katherine Lei noted in the report that asset rotation and rising excess liquidity are the primary driving forces behind the Chinese stock market rebound.
Although margin financing has approached historical highs, it represents only 2.3% of A-share circulating market capitalization, compared to 8% in 2015.
The equity allocation ratios of wealth management products and households (including equity mutual funds) remained essentially flat in the first half of 2025, at 2.4% and 7.7% respectively, with expectations for these ratios to increase in the coming period.
Given low deposit rates, the firm estimates that households will transfer 5% of their bank deposits into the stock market.
The 10-year government bond yield has risen over 9 basis points year-to-date, while it fell more than 88 basis points last year, indicating that the bond market rally has paused and may lead mixed funds and insurance companies to increase their equity allocations.
The firm recommends investors increase their beta exposure through brokerage stocks, with preferred picks including CICC H-shares, East Money, and Huatai Securities A/H shares.
High-dividend stocks are expected to regain growth momentum in the fourth quarter, benefiting from yield-seeking institutions such as insurance companies treating these stocks as fixed-income alternatives.
Among banking stocks, China Merchants Bank A-shares are the top pick due to relatively attractive dividend yields and market beta coefficients. The firm also recommends ICBC H-shares, Bank of China H-shares, and Bank of Communications A-shares, as these three companies' stock prices are expected to rise approximately 20% as dividend yield compression occurs this year.