As the summer holidays end, investors in China are coming to accept that consumption and growth will remain sluggish for a while. JPMorgan on Wednesday was the latest firm to downgrade its opinion on Chinese stocks to neutral from overweight, “due to a challenging outlook,” a team led by emerging markets equity strategist Pedro Martins said. Instead, JPMorgan increased its overweight recommendations on other emerging markets. Even after the change, JPMorgan still holds 18 China stocks in its global emerging markets model portfolio. “We keep our preference for select Internet names on [growth at a reasonable price] and rising shareholder return basis, and AI thematic plays once the current consolidation completes,” the analysts said. “Consumption and Real Estate sectors remain marred by domestic concerns with few bottom-up stock picking opportunities.” Chinese policymakers have acknowledged softness in domestic demand, but have yet to take meaningful action to boost consumer sentiment. The JPMorgan analysts said uncertainties about the China economic outlook range from tensions with the U.S. to “lingering deflation pressure.” In contrast to the U.S., consumer prices in China have barely risen in the last year, dragged down by the real estate slump and worries about future income. China’s consumer price index for August, due out 9:30 p.m. Sunday Eastern time, is expected to have risen just 0.7% on an annual basis , according to analysts polled by Reuters. JPMorgan’s downgrade follows Nomura’s demotion of MSCI China to neutral, from overweight, late last month. ‘Consistent disappointments’ “There has been consistent disappointments in the form of lack of meaningful measures to support the economy and the property sector while the economy remains at best ‘tepid,'” a team led by Nomura’s Asia ex-Japan equity strategist Chetan Seth said in an Aug. 25 report. “We are concerned that U.S. elections are likely to prove to be an overhang for the market,” the Nomura analysts added. The analysts noted attractive valuations and the possibility of short-term rallies spurred by stimulus expectations as reasons why they didn’t cut China stocks to an underweight rating altogether. U.S.-China relations have stabilized in the last year, but analysts cite uncertainty around the U.S. presidential election in November as a reason why Beijing has held off on domestic stimulus. U.S. national security advisor Jake Sullivan visited Beijing in late August for three days of official meetings during which he said Vice President Kamala Harris shared President Joe Biden’s view that maintaining high-level communication is the way to responsibly manage the bilateral relationship . Harris and former President Donald Trump are set to debate on Tuesday. During three periods of escalating U.S.-China trade tensions in 2018 and 2019, the MSCI China index fell each time, according to JPMorgan China Equity Strategist Wendy Liu. But she found China’s utilities sector outperformed, showing an average return of 12.8%. As part of its China stock downgrade, JPMorgan added shares of state-owned utility operator CR Gas , while removing shares of PDD, China Construction Bank and Kingdee International. The bank’s updated global emerging markets model portfolio includes internet-related names Alibaba , Tencent , Kuaishou Technology and Meituan – all of which are individually rated overweight by JPMorgan. Only one But when it comes to what JPMorgan calls its emerging markets growth and value picks, only one Chinese stock makes both lists: Hong Kong-listed short video company Kuaishou . The video app, a smaller rival to TikTok owner ByteDance, reported revenue and earnings for the second quarter that beat analysts’ expectations, according to FactSet. Average daily active users rose to 395.3 million, up from 376 million a year ago. JPMorgan has a price target of 65 Hong Kong dollars on Kuaishou, implying upside of more than 60% from Thursday’s close. The stock is down more than 20% for the year thus far. The Wall Street investment bank selects its value stock picks based on cash flow and upside potential, and growth stocks by their historical and expected sales increases. —CNBC’s Michael Bloom contributed to this report.