Beijing’s regulatory crackdown that has hammered Chinese stocks is a ‘local’ problem that won’t threaten global growth even as it spreads to other sectors, JPMorgan says

Chinese stocks China crackdown markets
Chinese stocks have fallen sharply since February. Jie Zhao/Getty Images
  • Beijing’s latest regulatory clampdowns are unlikely to be a threat to the broader global economy, JPMorgan said.
  • “We view the risk of further regulatory changes in China as a local rather than global problem,” said the analysts.
  • The firm reiterated its overweight rating for emerging markets stocks and said many Chinese stocks are now trading at a relative discount.
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Beijing’s latest regulatory squeeze that’s tightened across industries and led to a sell-off in Chinese stocks is unlikely to be a threat to the broader global economy, JPMorgan said.

In a Monday note, a team of analysts led by Marko Kolanovic said that while regulations may continue in the region, China will “stop short of changes that cause an economic growth shock.”

The firm reiterated its “overweight” rating for emerging markets stocks and noted that Chines stock valuations in sectors affected by the crackdown are now priced at a substantial discount relative to historical prices.

“We view the risk of further regulatory changes in China as a local rather than global problem,” said the analysts. “Given the substantial correction in affected market segments, this risk appears to already be priced in and could ease from here, and it poses little threat to our overall risk-on stance in our view.”

JPMorgan expects further regulations on gaming, data usage and protection, antitrust, labor protection, and platform fees. They added that non-consumer facing spaces within the technology sector are relatively insulated from regulations.

China’s increased scrutiny on certain businesses began in late 2020 following the abrupt cancellation of Ant Group’s IPO, but the clampdown has since spread to other fintech giants including Alibaba and Tencent, and Didi.

More recently, news of regulation that could prevent publicly-listed companies from teaching school curriculum sparked a sell-off in Chinese education stocks. Even industries facing no new regulatory measure have taken a hit, like US-listed Chinese electric vehicle companies.