UBS said Chinese stocks were its top pick in Asia, with the firm forecasting strong single-digit returns by the end of 2024 on the back of improved earnings outlook and more policy support.
UPS said China’s major internet companies are set to post stronger earnings, especially major e-commerce companies like Ali Baba Both companies are likely to benefit from sustained strength in online retail, and may also see improved consumer demand as the Chinese economy stabilizes.
Chinese internet giants were also trading at deep discounts after posting huge losses over the past three years.
Beyond internet companies, UBS said exposure to defensive stocks such as financials, utilities, energy and telecoms balanced the situation in Chinese markets. The company also said Chinese stocks offered attractive dividend yields across the board.
“We suggest investors add exposure to near-term growth while maintaining some exposure to the defensive sector, which should provide more resilient earnings and attractive dividend yields,” UBS analysts wrote in a note.
Beijing’s measures to further support the economy — particularly the beleaguered housing market — have provided a brighter outlook for the Chinese economy. But while Beijing has unveiled measures to support real estate, analysts have warned in recent weeks that the government’s implementation of those measures will be key to the recovery.
Chinese markets have been on the decline in recent weeks as concerns over the economic recovery grow amid a string of weak economic data. China’s stock index and benchmark indexes fell to their lowest levels in more than five months earlier this week.
While the Third Plenary Session of the Communist Party of China and the Politburo meeting offered some positive comments on further stimulus support, investors remained largely cautious about how the planned measures would be implemented.
A series of surprise interest rate cuts in July also failed to generate much optimism about China.
In the medium to long term, investors should “position themselves for a slower growth environment,” UBS said.
