The analyst rating from UBS is based on several key reasons:
1. Outperformance of Chinese Indices: The MSCI China Index has outperformed global indices by approximately 1.4% since the outbreak of the Iran conflict, indicating resilience in the Chinese equity market.
2. Limited Downside Risks: Recent geopolitical events have posed relatively limited downside risks to the China market due to:
- Low dependency on oil (only about 20% of total energy consumption).
- Ample oil inventory reserves (approximately 4 months or 1.3 billion barrels).
- Government pricing mechanisms that have mitigated the impact of rising oil prices on downstream customers.
- Potential benefits from higher input costs in a deflationary environment, which could drive up PPI and price expectations.
3. Sector Preferences: UBS has specific preferences for A-shares in sectors such as hardware tech, non-ferrous metals, internet, electrical equipment, brokers, and stocks related to 'going abroad.' For H-shares, they favor large internet companies and have added JD-SW and BIDU-SW to their model portfolio due to their low positioning, inexpensive valuations, and active shareholder return initiatives.
These factors collectively support UBS's positive outlook on the Chinese equity market and its recommendation for investors.
