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UBS upgrades China stocks to “most preferred” in Asia

Published 01/08/2024, 02:10 pm
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Investing.com-- UBS said Chinese equities were its most preferred pick within Asia, with the brokerage forecasting strong single-digit returns by end-2024 on an improved earnings outlook and more policy support.

UBS said that China’s major internet firms were set for stronger earnings, especially e-commerce majors such as Alibaba Group Holdings (NYSE:BABA) and JD.com Inc  (NASDAQ:JD). Both companies were likely to benefit from sustained strength in online retailing, and could also see improved consumer demand as the Chinese economy stabilizes. 

Chinese internet giants were also trading at significant discounts after logging steep losses over the past three years.

Beyond internet firms, UBS said exposure to defensives such as financials, utilities, energy and telecom stocks made for a balanced position in Chinese markets. The brokerage also said that Chinese stocks were offering attractive dividend yields across the board.

“We suggest investors add growth exposure in the near term while maintaining some exposure to the defensive segment, which should provide more resilient earnings and attractive dividend yields,” UBS analysts wrote in a note. 

Measures from Beijing to further support the economy- especially the beleaguered housing market- presented a better outlook for China’s economy. But while Beijing has unveiled measures to support the property, analysts have warned in recent weeks that the government’s execution will be key to a recovery. 

Chinese markets were nursing steep losses in recent weeks as a swathe of weak economic readings drummed up concerns over a recovery. The country’s benchmark Shanghai Shenzhen CSI 300 and Shanghai Composite indexes both slid to more-than five-month lows earlier this week.

While the Third Plenum of the Chinese Communist Party and a meeting of the Politburo did offer some positive comments on more stimulus support, investors remained largely cautious over how the planned measures will be executed. 

A series of surprise interest rate cuts in July also failed to generate much optimism over China. 

UBS said that in the medium to longer term, investors should “position themselves for a slowing growth environment .” 

 

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