UBS has identified Chinese equities as its top investment choice within Asia, projecting robust single-digit returns by the end of 2024. This forecast is driven by an improved earnings outlook and anticipated increases in policy support.
The brokerage anticipates that China’s leading internet firms will experience enhanced earnings, particularly e-commerce giants like Alibaba Group Holdings (NYSE) and JD.com Inc (NASDAQ). These companies are expected to benefit from sustained growth in online retail and potentially increased consumer demand as the Chinese economy stabilizes. Additionally, Chinese internet giants are trading at significant discounts following substantial losses over the past three years.
UBS also suggests a diversified investment approach, recommending exposure to defensive sectors such as financials, utilities, energy, and telecommunications for a balanced portfolio in the Chinese market. The firm points out that Chinese stocks offer attractive dividend yields across various sectors.
In a recent note, UBS analysts advised investors to increase their growth exposure in the short term while maintaining some investments in defensive sectors to benefit from resilient earnings and favorable dividend yields.
Recent measures from Beijing aimed at bolstering the economy, particularly the struggling housing market, have improved the economic outlook. However, analysts caution that the effectiveness of these measures will be crucial for a successful recovery.
Chinese markets have been grappling with significant losses recently, driven by weak economic data and concerns about recovery. The Shanghai Shenzhen CSI 300 and Shanghai Composite indexes recently hit their lowest points in over five months.
Despite optimistic signals from the Third Plenary Session of the Chinese Communist Party and a Politburo meeting regarding increased stimulus, investor confidence remains cautious regarding the implementation of these measures. Additionally, a series of unexpected interest rate cuts in July has failed to significantly boost optimism about China’s economic prospects.
Looking ahead, UBS recommends that investors prepare for a slowing growth environment in the medium to long term.
Related topics:
