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Pullback in China stocks is excessive, UBS says, with reopening trades still offering buying opportunities

  • Tailwinds are building up for local equities, Swiss bank says
  • Market correction offers a good buying opportunity, bank’s Shanghai-based analyst says

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An electronic board shows stock indices in Shanghai’s financial district. The UBS comments might offer some respite to Chinese stocks, which have seen momentum wane amid doubts about the durability of China’s economic recovery. Photo: Reuters
Zhang Shidongin Shanghai
The slide in China’s onshore stocks over the past two months may be overdone as investors have priced in the uncertainty of economic recovery by a greater extent than they should have, and the retracement offers a good opportunity for jumping back into reopening trades, UBS Group has said.
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While the risk appetite for yuan-traded stocks trading in Shanghai and Shenzhen is below the multi-year average, tailwinds are building for local equities, including an improvement in leading economic indicators, a further rebound in transport activity and stronger mutual fund sales, the Swiss bank said in a note on Wednesday.

The CSI 300 Index has dropped 4.7 per cent from a high set on January 30, after China’s removal of strict Covid-19 restrictions spurred a rally at the end of October.

“In the near term, the market correction offers a good buying opportunity,” Meng Lei, a strategist at UBS in Shanghai, said in the note. “Together with a valuation re-rating, we think this would drive considerable market upside.”

Investors are too wary of the sustainability of China’s recovery from the damage caused by the pandemic, the Swiss bank says. Photo: AFP
Investors are too wary of the sustainability of China’s recovery from the damage caused by the pandemic, the Swiss bank says. Photo: AFP
The UBS comments might offer some respite to Chinese stocks, which have seen momentum wane amid doubts about the durability of China’s economic recovery after three years of its zero-Covid policy.
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But the Swiss bank is not alone in calling a “buy” on Chinese stocks. MegaTrust Investment, a boutique asset-management firm, said earlier this month that a sell-off that wiped out US$450 billion in market value from Hong Kong stocks had already run its course, citing a pickup in economic fundamentals and easing of overseas turmoil in the banking industry.

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