Should You Buy China Stocks? JPMorgan vs Pentagon 2026

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•  27 Nov 2025
 

•   BABA  
   
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•   BIDU  
   
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•   BYD  
   
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Should you buy China stocks in 2026? You've been watching Chinese stocks from the sidelines for a while now. Maybe you got burned in 2021 when they collapsed. Maybe you missed the 33% rally this year and now you're wondering if it's too late. Maybe you're just tired of hearing conflicting advice from every analyst who thinks they know what's coming next.

JPMorgan says yes, buy Chinese stocks now. They upgraded China to overweight, arguing that the potential rewards far outweigh the risks going into 2026. Their strategists, led by Rajiv Batra, believe this is actually the right entry point because China has given up most of the gains it had earlier in 2025. The MSCI China index dropped 6.2% last quarter while broader Asian markets rose. The momentum stalled, valuations are reasonable at 12-14 times earnings, and foreign money hasn't really piled in yet.

Here's what JPMorgan sees: artificial intelligence investments paying off for $BABA $BIDU $TCEHY with revenue growth accelerating fast. A 2 trillion yuan stimulus package targeting consumer spending through tax cuts, electric vehicle subsidies, and housing support. Corporate governance reforms forcing companies to pay higher dividends and be more transparent, which should bring back investors who fled during the crackdown years.

But the Pentagon disagrees strongly. You know it's not that simple. You remember what happened to Jack Ma. You remember how BABA got hit with fines and new regulations that came out of nowhere. You learned the hard way that these companies, even the private ones, answer to Beijing first and shareholders second. The Chinese market lost 50% from peak to trough, and a lot of portfolios still haven't recovered.

Morgan Stanley isn't as convinced as JPMorgan. They're calling for modest 10-15% gains and warning about slowing earnings growth. Goldman Sachs is worried about US export restrictions on chips and AI technology getting tighter. These aren't small concerns you can brush aside.

Then there's the Pentagon angle, and this is where it gets uncomfortable. The Pentagon's view on China stocks 2026 is clear: these companies pose risks. The US Department of Defense wants to add $BABA $BIDU $BYD to the 1260H list, the official designation for Chinese companies that support the military. Deputy Defense Secretary Stephen Feinberg sent a letter to Congress recommending this, along with five other tech companies. The Pentagon's argument is that AI, cloud infrastructure, semiconductors, and communications technology from these companies could serve military purposes under China's Military-Civil Fusion strategy.

Right now, being on the 1260H list doesn't trigger immediate sanctions. But it creates a chilling effect. American institutions, banks, and investors start avoiding these companies to reduce regulatory and reputational risk. Starting in 2026, the Defense Department won't be able to sign contracts with listed companies, and that restriction could expand to other agencies. Even if you're not directly affected, the signal matters. It tells you the US government sees these companies as tied to national security threats, not just commercial enterprises.

The companies deny everything. $BABA says it has no military connections. $BIDU insists its products are purely civilian. But denial doesn't change the perception, and perception drives capital flows.

So should you buy China stocks right now? Here's what you're actually weighing. On one side: attractive valuations, massive government stimulus, genuine technological progress in AI, and a major investment bank telling you this is the moment. On the other side: political risk that never really goes away, a government that has proven it will sacrifice shareholder value for political goals, and escalating tensions with the US that could get worse before they get better.

JPMorgan's 2026 forecast for China stocks is forecasting 15% gains for Asian markets ex-Japan by end of 2026, with China as a top pick. That's not a moonshot, but it's solid if you're looking for growth after a tough few years. The question isn't whether the opportunity exists—it clearly does. The question is whether you can stomach the volatility and uncertainty that comes with it.

You've probably noticed that every time Chinese stocks start looking attractive, something political happens that reminds you why they traded at a discount in the first place. The valuations are half or a third of comparable US tech stocks for a reason. The discount exists because the risk is real.

This isn't about being bearish or bullish on China. It's about knowing what you're signing up for. If you're investing in $BABA or $BIDU you're betting that Beijing's stimulus works, that AI revenue growth continues, and that geopolitical tensions don't boil over into something that destroys shareholder value. You're also betting that you can handle watching your position swing 20-30% on news that has nothing to do with the company's actual business performance.

Some investors can handle that. They see the discount as the opportunity and they're comfortable with the risk-reward setup. Others have learned they can't sleep at night holding positions that depend on decisions made in Beijing and Washington that they have no visibility into.

JPMorgan thinks 2026 is the turnaround year. The Pentagon thinks these companies are too close to the Chinese military to ignore. Both things can be true at the same time, and that's exactly what makes this decision so difficult. The opportunity is real, but it comes with complications that don't exist in other markets. Only you know if that trade-off makes sense for your portfolio and your nerves.

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