UBS Global Wealth Management is bullish on China’s reopening with Asia investment strategist Min Lan Tan seeing it as a major positive driver for the broader region.
China’s reopening is being met with positive reception across the banking industry with UBS Global Wealth Management (GWM) being the latest to echo bullishness for its equity markets.
«We believe the government’s latest steps to downgrade COVID protocols and remove quarantine controls for inbound travelers from 8 January confirm our view that growth is now being prioritized over other objectives,» the Swiss bank said in a recent report.
«This means a full reopening is likely to play out in 1Q23, auguring well for the medium-term investment outlook.»
Growth Upside
If the reopening is derailed by issues like an excessively severe second wave of infections, China could generate GDP growth of just 4 percent in 2023 but on the upside, it could achieve more than 5.5 percent.
«In fact, if the reopening is smooth rather than bumpy […] we could even see consumption recovering from Chinese New Year in January,» said Min Lan Tan, head of the Asia chief investment office at UBS GWM, during a recent media briefing attended by finews.asia.
The bank’s base case for China’s 2023 GDP is a 4.9 percent increase.
Reopening Winners
In the near term, UBS is positive on Chinese equities that favor direct beneficiaries of the reopening including select companies in the consumer, internet, pharmaceutical and medical equipment, transportation and capital goods, and material sectors.
The bank is targeting 15 percent outperformance for these sectors compared to the MWSCI China index in the coming six to 12 months, on top of the potential for upside in the teens for the broader market.
Although UBS expects China to outperform Asia ex-Japan, the reopening is nonetheless expected to benefit the broader region, such as Thailand which will see a spike in outbound Chinese tourists.
