Chinese stocks set to bounce back in second half as strong corporate earnings revive confidence, say UBS and China Asset Management

Name: Premier Li Qiang plays up China’s economic prospects at World Economic Forum’s ‘Summer Davos’
Uploaded: 2023-07-26T06:28:54.000Z
Duration: 1 min 49 s
Description: Premier Li Qiang plays up China’s economic prospects at World Economic Forum’s ‘Summer Davos’

A recovery in corporate earnings may drive an average 10 per cent gain in Chinese stocks by the end of the year, UBS said

Valuations have no room to fall further, says Meng Lei, a Shanghai-based strategist at UBS

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China’s stocks are likely to bounce back in the second half of the year as supportive government measures boost earnings growth, according to UBS and China Asset Management. Photo: EPA-EFE

Zhang Shidongin Shanghai

Published: 2:28pm, 26 Jul 2023Updated: 4:13pm, 26 Jul 2023

China’s stocks are likely to bounce back in the second half of the year as supportive government measures boost earnings growth and as valuations dented by economic pessimism bottom out, according to UBS Group and China Asset Management.

A recovery in corporate earnings may drive an average 10 per cent gain in Chinese stocks by the end of the year, UBS said. Battered valuations, an easing of geopolitical tensions and a predicted end to US interest-rate rises provide fertile ground for an uptick in equities, according to the Hong Kong unit of China Asset Management that oversees 1.23 trillion yuan (US$171.9 billion) of assets.

“The market is probably overly pessimistic and most of the slowdown in growth has now been priced into stocks,” said Meng Lei, a Shanghai-based strategist at UBS, during an online briefing on Tuesday. “Actually, excessive pessimism offers investors a very good opportunity for positioning.”

Both China and Hong Kong stocks are off to a good start in the second half, with the CSI 300 rising 1.7 per cent and the Hang Seng gaining 2.4 per cent since the end of June.

The statement released after a Politburo meeting chaired by President Xi Jinping on Monday has brightened the outlook for stocks too. Policymakers notably left out the slogan “housing is for living, not for speculation” for the first time since 2018, fanning speculation about a potential loosening of property policy in major cities.

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Premier Li Qiang plays up China’s economic prospects at World Economic Forum’s ‘Summer Davos’

The CSI 300 fell 0.8 per cent in the first six months and the Hang Seng Index slid 4.4 per cent, as measures to revitalise growth in the world’s second-largest economy failed to meet investors’ expectations, while China-US ties remained frayed.

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