UBS GWM says China equities need 'punchier' policies

The benefits of monetary easing by the People’s Bank of China have already been priced in and “punchier” policies are needed to revive the country’s equities, according to the global wealth management arm of UBS Group AG.

Authorities need to adopt a more sustained and “holistic” approach to tackle the core issues that are affecting the economy, said Eva Lee, head of Greater China equities at UBS Global Wealth Management. In the long run, Chinese stocks are still the firm’s most preferred market and expected to deliver a return of around 10% this year.

A cut to banks’ reserves or the one-year policy rate has been priced in, and “is not going to really excite the market,” Lee said in a briefing on Friday. In this environment, the money manager is staying defensive on Chinese equities and favors state-owned banks which offer attractive dividend yields, sectors that generate a recurring cash flow and new economy names that are actively buying back shares.

The gloom surrounding China’s assets is deepening as a long-running property slump, geopolitical risks and a lack of massive stimulus cloud the outlook. Some $6.3 trillion has been erased from the market value of Chinese and Hong Kong stocks since a peak reached in 2021, while the offshore yuan has weakened 1% this year after dropping almost 3% in 2023.

“If there is some sense that maybe the near-term pain is a bit too much that the National People’s Congress can have something punchier, that is the upside to break out of” a defensive stance, Min Lan Tan, head of Asia Pacific chief investment office, said at the same briefing.

Investors are looking for larger fiscal steps such as more support through a pledged supplementary lending facility or comprehensive reforms to show that the government is re-prioritizing high growth, and not just keeping the pace of expansion at around 4.5%, Tan added.