Trojan fire horse amv

E Y E O N T H E M A R K E T • M I C H A E L C E M B A L E S T • J . P . M O R G A N • Au g u s t 1 2 , 2 0 2 6 Online Trump and Iran War Tracker Online China Monitor

The Year of the Trojan Fire Horse: China’s imbalanced economy and unrelenting mercantilism I read an article1 in the FT recently regarding China’s economy from Stephen Roach, currently of the Yale China Center and formerly Morgan Stanley’s Chief Asia Economist. Roach argues that China's reliance on a production based, export-driven model is unsustainable, that weak Chinese domestic demand forces excess manufacturing supply onto global markets, thereby creating risks that resemble past financial crises. The main pillars of Roach’s argument are clearly visible in China: soaring exports, weak private and state-driven investment, weak retail sales, a housing collapse and high levels of precautionary household savings due to an insufficient safety net. China exports and imports China state vs private investment in fixed assets Index (100 = 2017) y/y % change 210 30% Exports 25% 190 Imports 20% State 170 investment 15%

5% 130 0% Private 110 -5% investment

90 -10% Source: Haver, General Administration of Customs, JPMAM, June 2026 Source: China National Bureau of Statistics, JPMAM, May 2026

China retail sales China real estate development investment y/y % change Index (100 = 2017) 20% 150

-10% Source: Haver, China Customs, Bloomberg, JPMAM, July 2026 Source: Haver, China Customs, Bloomberg, JPMAM, July 2026

Gross domestic savings rate of the top 10 economies China activity indicators Percent of GDP Index (100 = Jan 2016) 55% China 240 Exports by value India 220 Industrial production 45% Russia 200 Retail sales 180 Fixed asset investment Japan Home sales 35% 160 Germany 140 25% Italy 120 France 100 15% 80 United States 60 United 5% Kingdom Brazil Source: World Bank, JPMAM, 2025 Source: China National Bureau of Statistics, GACC, JPMAM, June 2026

1 “How long can China defy history and logic with its imbalances?”, Stephen Roach, FT, July 22, 2026 1

E Y E O N T H E M A R K E T • M I C H A E L C E M B A L E S T • J . P . M O R G A N • Au g u s t 1 2 , 2 0 2 6 Online Trump and Iran War Tracker Online China Monitor

That said, higher frequency indicators we track in China are mostly stable. The charts below show some ups and downs in services/manufacturing surveys and different activity monitors, but nothing exceptionally weak. Also, China’s GDP deflator is rising after a period of deflation. I don’t sense an imminent crisis on tap for China’s economy given the indicators below, even if there is no big-bang stimulus package this fall to revive domestic demand. Unfortunately for equity investors, these trends are not enough to offset concerns about China’s imbalanced economy, leading to yet another year in 2026 of Chinese equity underperformance after a very poor five year stretch. China composite services / manufacturing survey China economic activity monitor (Yicai Index) PMI Index (50+ = expansion) Index (100 = Jan Coal and electricity consumption, employment, traffic 56 congestion, commercial housing sales, subway flow, air 54 140 pollution, dry bulk freight, bankruptcy

46 Caixin Global 80 44 National Bureau of Statistics

Source: Bloomberg, JPMAM, July 2026 Source: Yicai Research Institute, JPMAM, July 2026

China economic activity monitor (Now Casting Index) China GDP deflator Index (100 = Mar 2000) Nominal GDP y/y growth rate minus real GDP y/y growth rate 90 12%

70 6% Coal and electricity consumption, 60 employment, traffic congestion, 3% commercial housing sales, subway flow, air pollution, dry bulk freight, 50 bankruptcy 0%

% '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24 '26 Source: Now-Casting Economics, JPMAM, July 2026 Source: Bloomberg, JPMAM, Q2 2026

2020-2025 annualized total returns for major equity 2026 ytd total returns for major equity markets markets, Percent, US$ returns Percent, US$ returns 25% 70% 60% 20% 50%

Emerging Markets MSCI World ex US 40%

US Small Cap US Large Cap China onshore 30%

EM ex-China Latin America World ex EM

All Country World Emerging Markets Nasdaq Canada 10% Korea Taiwan Japan Europe

US Large Cap US Small Cap China onshore 10%

World ex EM Eurozone EM…