According to UBS analysts, Chinese equities are expected to face challenges in the near term due to ongoing tariff uncertainties and limited domestic stimulus. However, there are opportunities in defensive sectors and key growth stocks.
UBS maintains a “Neutral” stance on Chinese stocks, citing downside risks from geopolitical and macroeconomic volatility.
UBS analyst Eva Lee highlighted the rising tariff uncertainty post-U.S. elections and Beijing’s subdued economic stimulus as major concerns. The recent focus on mitigating local government debt rather than boosting key sectors like property and consumption has disappointed investors.
Lee mentioned that Beijing’s cautious approach towards stimulus could impact market sentiment in the short term as investors await clarity on U.S. tariff policies.
While tariff-induced volatility and lackluster stimulus announcements could affect Chinese earnings and valuations, UBS noted that the limited U.S. revenue exposure of Chinese companies could provide some cushion to earnings growth.
UBS recommended prioritizing defensive and high-yielding value sectors over growth-oriented stocks. Sectors like utilities and telecoms with higher dividend yields compared to Chinese government bonds are considered more resilient. Growth sectors, including Chinese internet companies, are attractive for long-term investors but may face challenges in the next six months due to geopolitical uncertainties.
Stocks with strong dividend yields, like China Merchants Bank Co Ltd Class H (HK:), are expected to perform well. UBS sees potential in the bank’s retail franchise and dividend yield, deeming its valuation attractive.
Internet giants such as Alibaba (NYSE:) and Tencent Holdings (HK:) are anticipated to benefit from e-commerce growth, AI advancements, and cloud services. Industrial players like China Communications Construction (HK:) could see gains from infrastructure Investment Trusts (C-REITs).
UBS also highlighted energy giant CNOOC Ltd (HK:) as a focus, projecting higher oil prices and increased production volumes to drive profitability.
While defensive sectors offer stability, internet stocks provide medium-term value due to their market position and potential stimulus-driven growth, according to Lee.
UBS forecasts 8.5% EPS growth for 2025 but warns of potential slowdowns in 2026 due to ongoing macroeconomic uncertainties.