UBS Claimed Downside Risks for China Stocks, Bullish on Defense and High-return Value Stocks

 

UBS maintained a neutral rating on Chinese equities in its report, emphasizing the downward risks of geopolitical and macroeconomic volatility.

 

UBS analyst Eva Lee specified that growing tariff uncertainty caused by US president-elect Trump and the depressed market sentiment arising from the Chinese government's limited economic stimulus were significant downside risks.

 

Lee explained that the recent stimulus has disappointed investors by focusing on reducing local government debt rather than boosting the real estate or consumption market. Disappointed sentiment poses sliding risks to Chinese earnings and valuations. But she added the limited stimulus is just a cautious reaction by Beijing ahead of the US finalizing its tariff policy.

 

Given the risks above, UBS preferred defensive and high-yielding value stocks over growth stocks, highlighting more resilient stocks such as financials, utilities, and telecoms. However, growth stocks led by Chinese internet companies remain attractive to long-term investors due to their medium-term value despite short-term vulnerability.

 

UBS recommended stocks with strong dividend yields, such as China Merchants Bank Co Ltd Class H (HK: 3968), and defense stocks, such as energy giant CNOOC Ltd (HK: 0883).

 

Finally, UBS warned that China's growth could slow in 2026 due to persistent macroeconomic uncertainty.

 

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