Investor confidence in China remains dented with many hoping for more stimulus to trigger a rebound. «Unorthodox measures» to support the market should not be ruled out, according to UBS.
Despite a series of supportive policies to the market in China, such as reserve ratio cuts or increased buying by state-owned entities, investor sentiment remains downbeat with many banks calling on more stimulus to trigger a sustained rebound. According to UBS Global Wealth Management, the possibility of this materializing and some more is possible.
«We anticipate continuous policy support to allow growth to come close to a potential target of about 5 percent for 2024. But an upside case of unorthodox measures should not be ruled out, given recent positive signs of stepped-up policies,» said the bank in an investment research report.
Growth Switch
If the policy developments move in favor of UBS’s upside scenario, the bank advises investors to add exposure to growth stocks that are sensitive to the macro recovery.
But for now, the bank is advocating for a tilt to a more defensive near-term allocation to companies with resilient earnings growth, better visibility, and defensive high yields. This includes state-owned banks, utilities, and telecommunications.
Medium to Longer Term
For the medium to long-term outlook, UBS highlights value-driven retail trends, increasing global presence, and strengthening technology supply chains as three core drivers. Beneficiaries include auto, consumer, healthcare, and technology and gaming sectors.
