JPM Sees Anti-Involution Policies as Boon for CN Stock Mkt; Top Picks Incl. ZHONGSHENG HLDG/ SF HOLDING/ PETROCHINA/ ZTO EXPRESS-W

JPMorgan reiterates that China's "anti-involution" policy will be a key thematic trade for the next 18-24 months, focusing on rationalizing local government-backed investments to improve market ROI. This policy, broader than previous regulatory pushes, is expected to benefit leading industry giants, with renewable energy stocks prioritized due to their strong revenue structures. JPMorgan's top picks reflecting this thematic include ZHONGSHENG HLDG, SF HOLDING, PETROCHINA, and ZTO EXPRESS-W.

Analysis

JPMorgan has identified China's "anti-involution" policy as a key thematic investment driver for the next 18-24 months, viewing it as a significant catalyst for the Chinese stock market. The policy's objective is to rationalize local government-backed and subsidized investments to improve corporate return on investment (ROI), which the firm considers a prerequisite for the next phase of market expansion and institutionalization. This regulatory initiative is described as broader in scope than the 2021 push against disorderly capital expansion. The primary beneficiaries are expected to be leading industry giants who stand to gain from a reduction in inefficient, state-supported competition. Among the affected industries, JPMorgan prioritizes renewable energy stocks, citing their stronger revenue structures compared to property-related equities and more effective policy execution versus the e-commerce sector. Specific companies highlighted as top picks to benefit from this theme include DAQO New Energy (DQ.US), ZTO EXPRESS-W (02057.HK), SF HOLDING (06936.HK), and PETROCHINA (00857.HK).

Key Decisions for Investors

• Investors should consider overweighting exposure to established, large-cap Chinese industry leaders, as the 'anti-involution' policy is structured to improve their competitive positioning by curbing inefficient, subsidized competition.
• A tactical allocation towards the Chinese renewable energy sector is warranted, given its explicit prioritization within the policy framework and its perceived stronger fundamentals relative to other impacted industries.
• Consider evaluating specific names recommended by JPMorgan, such as DAQO New Energy (DQ) and ZTO Express (ZTO), as direct plays on this theme, while monitoring for tangible signs of rationalized capital expenditure and improved ROI metrics within these target sectors.