China Stocks Saw a Sharp July Style Rotation, Not a Liquidity Crisis, J.P. Morgan Says
J.P.
J.P. Morgan’s China quantitative strategy report says Chinese stocks underwent a significant style rotation in July 2026. Growth and momentum strategies fell sharply, with Momentum down 11.0% and Growth down 13.6%. Low Volatility, Value and Quality strategies performed strongly, with Low Volatility up 21.8% and Value up 19.0%.
The report explicitly rejects the view that a momentum pullback equals a liquidity squeeze. Liquidity depth in the STAR 50 remained more than twice its five-year average, indicating that market liquidity was still ample.
The global macro backdrop, as measured by QMI signals, showed Europe entering “contraction” while the United States and China were “slowing.” China’s credit impulse signal turned negative. Historically, this type of environment has favored Value over Growth, according to the report.
J.P. Morgan highlights overweighting Low Volatility and Value styles, maintaining a neutral stance on Momentum and reducing Growth exposure. The report’s conclusion is that July’s style rotation was a macro-driven structural adjustment rather than a liquidity crisis, and that defensive Value strategies have a sustained advantage in the current macro environment.
The report is positive for Low Volatility and Value stocks, including high-dividend and defensive blue chips, and negative for high-valuation Growth stocks and Momentum strategies. The current style rotation may not yet be complete: August trading volume was 0.7 times the July average, suggesting that large-scale rebuilding of positions had not yet begun.
The report identifies three catalysts to monitor: changes in global QMI signals, including whether China moves from “slowing” to “contraction”; the direction of China’s credit impulse signal; and August liquidity data and changes in market structure.
The report explicitly rejects the view that a momentum pullback equals a liquidity squeeze. Liquidity depth in the STAR 50 remained more than twice its five-year average, indicating that market liquidity was still ample.
The global macro backdrop, as measured by QMI signals, showed Europe entering “contraction” while the United States and China were “slowing.” China’s credit impulse signal turned negative. Historically, this type of environment has favored Value over Growth, according to the report.
J.P. Morgan highlights overweighting Low Volatility and Value styles, maintaining a neutral stance on Momentum and reducing Growth exposure. The report’s conclusion is that July’s style rotation was a macro-driven structural adjustment rather than a liquidity crisis, and that defensive Value strategies have a sustained advantage in the current macro environment.
The report is positive for Low Volatility and Value stocks, including high-dividend and defensive blue chips, and negative for high-valuation Growth stocks and Momentum strategies. The current style rotation may not yet be complete: August trading volume was 0.7 times the July average, suggesting that large-scale rebuilding of positions had not yet begun.
The report identifies three catalysts to monitor: changes in global QMI signals, including whether China moves from “slowing” to “contraction”; the direction of China’s credit impulse signal; and August liquidity data and changes in market structure.