Chinese stocks have potential upside this year, as liquidity remains supportive and expectations about earnings growth have improved, according to JPMorgan Chase, the biggest bank in the US by market capitalisation.

Overseas investors have unwound their underweight positions on China’s yuan-denominated shares, and margin trading was at a reasonable level to prop up the market, said Erin Zhang, an equity strategist at JPMorgan, at a briefing in Shanghai on Wednesday. The companies on the MSCI China Index and the CSI 300 Index were expected to post double-digit earnings growth this year, she said.

JPMorgan set a year-end target of 100 for the MSCI China Index in the base-case scenario, implying a 27 per cent gain from its current level, while its projection of 5,200 for the CSI 300 indicated a 7 per cent increase, Zhang said.

“There’s substantial upside room for Chinese stock,” she said. “We see a market with abundant liquidity, as is shown by fast turnover velocity and the reasonable leverage levels. Foreign investors have also increased allocations because of China’s economic resilience amid the Middle East war.”

Chinese stocks have gained favour among investors, as the country’s economy is relatively insulated from rising energy costs owing to its drive for green energy and because technology companies are extending their massive AI infrastructure buildout to stay ahead of the global race. The benchmark CSI 300 has risen nearly 5 per cent this year, while a gauge of a tech board in Shanghai that hosts leading AI chipmakers has jumped more than 30 per cent.

Foreign investors had bought US$13.1 billion of Chinese onshore stocks as of early May this year, as the US dollar weakened and the war in the Middle East spurred inflows to yuan assets in haven trades, Zhang said.