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- JPMorgan found that investors are looking to cut risk in China more than any other market.
- Beijing and Washington remain on shaky ground and could be stuck in a "no landing zone."
- JPMorgan added that guardrails are needed "as the risks of catastrophic miscalculations are rising."
Given the uncertain geopolitics between Washington and Beijing, investors are looking to cut their risk exposure in China more than anywhere else right now, according to JPMorgan.
In a Wednesday note, the bank's strategists said the lack of communication between top leadership in the US and China heightens the chance of conflict, and relations between the two nations could be stuck in a "no landing zone."
In a survey, JPMorgan found that investors identified China as the country they were most inclined to reduce risk (28%), followed by Turkey (22%), and Frontier Markets (16%).
"There is growing risk that miscalculations could lead to conflict, whether intentional or unintentional," strategists wrote. "Guardrails are needed on both sides to prevent confrontations from spiraling out of control, as the risks of catastrophic miscalculations are rising."
Looking ahead, JPMorgan said China and the US must open a dialogue about Russia's war on Ukraine and the unsustainable debt in low- and middle-income countries.
Currently, there has been communication between lower-level leadership, but that's yet to happen at the highest levels, strategists added.
"Our survey also found that investors are more concerned about geopolitical tensions and the current leadership direction in China than on its economic fundamentals, with surprisingly little discussion about China's reopening during the conference," they said.
The warning comes as trade tensions have ramped up, with the US seeking to block China's access to key technologies, including chips.
The Chinese spy balloon that flew over the US recently elevated security tensions. And in a speech Thursday, Treasury Secretary Janet Yellen is expected to call for a "constructive and fair" economic relationship with China while reiterating that the US will continue to look out for its security interests.
Meanwhile, the International Monetary Fund forecasted that China will be the biggest driver of global growth over the next five years, more than doubling the US's contribution.
China is set to add 22.6% of the world's total growth by 2028, while the US will add 11.3%. Half of global growth, the IMF noted, will be concentrated in China, the US, India, and Indonesia.