J.P. Morgan: Policy support cushions A-shares as earnings come under pressure; maintains dividend-growth barbell allocation

Why do third-quarter results sound a warning for full-year earnings?

As of 31 October, CSI 300 constituents that had reported third-quarter results accounted for approximately 99% of the index’s market capitalization: sales per share rose about 5% year on year in the third quarter of 2026, while earnings per share fell about 4% and the net profit margin narrowed by 91 basis points year on year.
JPMorgan believes third-quarter performance indicates a risk that full-year year-on-year earnings-per-share growth for the CSI 300 will fall from its current level of about 23% to the high single digits or low double digits. It will also limit the scope for upward earnings forecast revisions over the next 12 months.
Sector support and headwinds coexist: innovative drugs, CXO services and commodities in an upswing are contributing growth, while consumption is affected by households becoming more pragmatic in their spending. The bank remains positive on the CSI 300 and notes that the consensus forecast is for earnings per share to grow 19% year on year over the next 12 months.

On 2 November, financial authorities held a meeting to promote broader use of capital market support tools and improve the relending arrangements for share buybacks and stake increases. JPMorgan believes tools directly targeting the stock market signal coordinated support for valuations.
The bank views these policies as downside support rather than a catalyst for a direct valuation rerating. Whether they establish a lasting market bottom depends on whether the allocated quotas translate into actual loan drawdowns, executed buybacks and sustained equity inflows.

JPMorgan believes crowding and momentum indicators for AI- and healthcare-related trades are approaching a bottom. The pullback has improved risk-reward across more AI infrastructure segments: forward 12-month price-to-sales ratios for wafer fabrication and back-end equipment are close to historical averages, bringing them into the bank’s focus alongside memory and contract manufacturing of servers and switches.
Supply-chain research supports the demand case: longer testing times for AI-related components, higher-than-expected memory capital spending and the localization of advanced logic chips are together driving growth in Chinese semiconductor equipment demand.
Earnings performance remains mixed: Foxconn Industrial Internet’s third-quarter revenue and net profit rose 57.7% and 60.4% year on year, respectively. Among equipment makers, Advanced Micro-Fabrication Equipment’s net profit grew 159%, but NAURA Technology’s revenue rose only 1.3%, a slowdown in growth.

As dividend yields at large state-owned banks fall below 4%, JPMorgan continues to screen for other stocks with yields above 4%, steady earnings growth and reasonable valuations.
Its criteria also include earnings growth for three consecutive quarters, expected positive earnings-per-share growth in 2026 and 2027, and positive free cash flow over the past 12 months. Some regional banks could also benefit if additional local government financing vehicle debt-swap quotas are introduced next year.
Performance within the banking sector is uneven: in the first three quarters of 2026, large banks posted revenue growth and a year-on-year recovery in net interest margins, while some joint-stock banks saw substantial declines in net profit because of lower investment income or provisions for asset quality.