Investors may take risky path, says UBS

PUBLISHED : Friday, 22 March, 2013, 12:00am
UPDATED : Friday, 22 March, 2013, 4:19am

Investors might consider adopting a riskier strategy in the second quarter, investment bank UBS said yesterday.

It said it expected the rebound in the A-share market to be sustainable owing to the economic recovery on the mainland.

Gao Ting, the chief China strategist at UBS, said the bank had overweighted the US and emerging markets, including the A-share market.

"Investors may consider increasing riskier investments like stocks when inflationary pressure is mounting," he said. He forecast a 3.1 per cent year-on-year increase in consumer prices on the mainland and annualised 8.3 per cent economic growth in the second quarter.

The rebound in the economy would be negative for the bond market, Gao said, suggesting underweighting fixed-income investments.

"Unlike the previous rebound in the A-share market, the uptick since last December is backed by sound fundamentals, so I expect the rebound to continue this time," he said.

Mainland stocks suffered from the slowdown in economic growth last year. The Shanghai Composite Index fell to a four-year low of below 2,000 points in early December.

Valuations in the A-share market were still reasonable, with price-earnings multiples at 10 times after the rebound, Gao said.

He said the non-banking financial sector would benefit from the country's financial reforms, while stocks in the building materials, construction and machinery sectors would gain from the increase in infrastructure investment.

But he said property tightening policies and shadow banking risks were major uncertainties.