China equity strategy under four policy-stimulus scenarios: J.P. Morgan maps four China stimulus paths, favoring Six Networks beneficiaries in its base case

Overview

This China equity strategy report sets out four possible policy-stimulus outcomes and corresponding stock screens. J.P. Morgan's base case is a supportive but not expansionary fiscal catch-up centered on the Six Networks, while it retains an Overweight China-equity allocation and end-2026 targets for MXCN and the CSI-300.

Core views

J.P. Morgan frames China equities around four policy paths. Its base case is that fiscal execution improves within the approved budget rather than becoming broadly expansionary: faster government-bond issuance, fiscal-deposit drawdown and policy-bank funding support infrastructure, urban renewal, project completion and strategic investment. Weak land revenue, local-government risk aversion and limited project readiness still constrain execution. The report argues that, if spending follows the Six Networks framework, policy should flow into order backlogs, revenue recognition and operating leverage over the next two to three quarters. The central base-case opportunity is Six Networks capital expenditure. The report estimates China data-center capex could roughly double from US$55bn–69bn in 2026 to US$95bn–151bn by 2029, benefiting AI servers, optical modules, liquid cooling, IDC operators and the domestic AI-chip supply chain; Xinhua News has reported roughly Rmb4trn of computing-network spending over the 15th Five-Year Plan. The new-type grid adds more than Rmb5tn of planned spending, about 75% above the prior plan, supporting UHV equipment, distribution automation, smart meters, storage inverters and virtual power plants. Telecom investment is projected at Rmb3.8tn directly and Rmb7tn of upstream and downstream output, including 500,000 new 5G-A base stations, dual-gigabit upgrades, eventual 6G and low-earth-orbit satellite coverage. Water supply, urban pipelines and logistics are more traditional and balance-sheet-intensive sleeves: more than Rmb6tn for water, about Rmb5tn for 770,000 km of urban pipes, and a logistics backbone targeted at 95% completion. In an upside case resembling September 2024, policymakers would go beyond the approved budget with incremental central or quasi-fiscal resources, stronger housing-completion support and consumption measures. J.P. Morgan stresses that the key condition is genuinely incremental funding, central risk-sharing and rapid conversion into spending rather than a larger headline package alone. Based on the earlier episode, it expects a one-month beta-driven rally led by home appliances, autos, property developers and brokers, second-tier baijiu and selected building-materials names; export-oriented consumer companies and defensive high-yield names lagged then. The report notes that the historical outperformers generally had higher up-beta, and investors cited export-growth deceleration to mid-single digits as a possible precondition. A monetary-only outcome would hold fiscal policy steady while cutting policy rates, guiding interbank rates lower and allowing liquidity to remain loose. Historical back-testing indicates micro and small caps lead over three months and growth modestly outperforms value. Cyclicals tend to respond first, but healthcare, IT and materials lead over three months while utilities, staples and financials lag. At six months after rate cuts, median returns cited are +9.5% for Wind Micro Cap and +5.0% for CSI1000, compared with -2.5% for CSI300 Value. The downside case is persistent fiscal under-delivery: bond proceeds and policy-bank funds reach projects slowly, weak land revenue and scarce matching funds impede local implementation, fiscal deposits remain elevated and intended stimulus is deferred. With lackluster liquidity, the report expects a flight-to-safety regime emphasizing low valuation, balance-sheet strength, cash flow and dividends. Its defensive MXCN screen requires three-month ADT above US$30m, trailing P/B below 1.5x, positive free-cash-flow growth in the latest fiscal half-year, dividend yield above 4%, and positive 2026 and 2027 consensus EPS growth; insurers, selected banks, energy and consumer staples dominate the results. J.P. Morgan maintains an Overweight China-equity allocation within EM/Asia and end-2026 targets of 100 for MXCN and 5,200 for CSI-300, supported by consensus EPS growth projections of 14% and 25%, respectively. It says AI remained a tier-one growth theme in 2Q26 and could support an ecosystem rebound in the rest of 2H26, although liquidity turbulence may make the path uneven. Near-term caution reflects potentially tighter monetary policy and liquidity, a worsening Asia QMI, US mid-term-election risk aversion, limited new earnings catalysts before October 3Q results and unfavorable seasonality. The report expects stimulus speculation over the next six months to focus on the October 5th Plenum, the early-to-mid-December Central Economic Work Conference, and the early-March 2027 Two Sessions.

Analysis framework

The report uses scenario analysis to connect fiscal and monetary-policy assumptions to sector and style outcomes. It combines planned Six Networks expenditure and investment estimates with historical comparisons to the September 2024 stimulus episode, post-rate-cut index back-testing, and quantitative stock screens based on market capitalization, liquidity, valuation, free cash flow, dividend yield and earnings-growth criteria.

Methodology notes

• Other

  Policy-scenario analysis

  J.P. Morgan compares fiscal catch-up, broad fiscal stimulus, monetary-only easing and fiscal under-delivery, then maps each scenario to expected style, sector and stock-market leadership.

• Quantitative, Factor, and Portfolio TheoryStyle factor analysis

  Historical post-rate-cut return back-testing

  The report compares median returns of size, growth/value and sector indices after policy-rate cuts to identify likely relative winners under monetary-only easing.

• Valuation methodsPB valuation

  Defensive low-P/B and dividend screen

  For the fiscal-under-delivery case, the report filters liquid MXCN stocks using P/B below 1.5x alongside positive free-cash-flow growth, dividend yield above 4% and positive consensus EPS growth.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Iluvatar CoreX - H (9903.HK)

  Favored domestic AI supply-chain player

  Strengths

  Included in J.P. Morgan's favored domestic AI supply-chain list.

  Risks

  Liquidity turbulence could make the AI-theme recovery uneven.

• V-Test - A (688372.SH)

  Favored domestic AI supply-chain player

  Strengths

  Included in J.P. Morgan's favored domestic AI supply-chain list.

  Risks

  Liquidity turbulence could make the AI-theme recovery uneven.

• JECT - A (600584.SS)

  Favored domestic AI supply-chain player

  Strengths

  Included in J.P. Morgan's favored domestic AI supply-chain list.

  Risks

  Liquidity turbulence could make the AI-theme recovery uneven.

• AMEC - A (688012.SS)

  Favored domestic AI supply-chain player

  Strengths

  Included in J.P. Morgan's favored domestic AI supply-chain list.

  Risks

  Liquidity turbulence could make the AI-theme recovery uneven.

• NAURA - A (002371.SZ)

  Favored domestic AI supply-chain player

  Strengths

  Included in J.P. Morgan's favored domestic AI supply-chain list.

  Risks

  Liquidity turbulence could make the AI-theme recovery uneven.

• Meituan (3690.HK)

  Top pick outside AI

  Strengths

  Named among J.P. Morgan's non-AI top picks for diversification.

• Bank of China - H (3988.HK)

  Top pick outside AI and defensive-screen constituent

  Strengths

  Named among non-AI top picks and included in the low-P/B, high-yield defensive screen.

  Weaknesses

  Financials are expected to underperform under monetary-only easing over three months.

• BYD Company Limited - H (1211.HK)

  Top pick outside AI

  Strengths

  Named among J.P. Morgan's non-AI top picks for diversification.

Key data

• China data-center capexUS$55bn–69bn in 2026; US$95bn–151bn by 2029J.P. Morgan estimates capex roughly doubles under the compute-power-network investment path.
• Compute-network spendingRmb4trnEstimated 15th Five-Year Plan spending reported by Xinhua News.
• New-type grid spending>Rmb5tnPlanned 15th Five-Year Plan spend, about 75% above the prior plan.
• Telecom investmentRmb3.8tn direct investment; Rmb7tn upstream/downstream outputIncludes 500,000 new 5G-A base stations and network upgrades.
• Post-rate-cut six-month median returnWind Micro Cap +9.5%; CSI1000 +5.0%; CSI300 Value -2.5%Historical comparison cited for monetary-only easing.
• End-2026 index targetsMXCN 100; CSI-300 5,200Underpinned by 14% and 25% consensus year-on-year EPS growth projections, respectively.

Impact & implications

The report's preferred base-case positioning is toward companies exposed to funded AI computing, telecom and grid investment, with water, pipeline and logistics beneficiaries as additional infrastructure sleeves. A broad fiscal package would instead favor high-beta property and consumer chains; monetary-only easing would shift leadership toward smaller growth stocks and healthcare, IT and materials; fiscal execution failure would favor low-P/B, high-yield cash-flow defensives.

Risks

• Fiscal execution may remain constrained by weak land revenue, local-government risk aversion and limited project readiness.
• A broad upside stimulus requires genuinely incremental funding, central risk-sharing and rapid conversion of funding into spending.
• Liquidity turbulence, potentially tighter monetary policy, a worsening Asia QMI, US election-related risk aversion and poor seasonality could weigh on equities in the coming weeks.
• Fiscal under-delivery and weak market liquidity could trigger a flight to safety away from cyclical and policy-sensitive sectors.

What to watch

• The 5th Plenum scheduled for October.
• The Central Economic Work Conference expected in early to mid-December.
• The Two Sessions expected in early March 2027.
• Whether export growth decelerates to mid-single digits, a condition investors cited for broader property-and-consumption stimulus.
• Government-bond issuance, fiscal-deposit drawdown, policy-bank funding deployment and actual project execution.