The domestic drivers for Chinese equities

Long-term fundamentals remain attractive for China, says UBS, despite the noise and volatility surrounding the US/China trade wars.

In a market outlook, the firm said equity valuations for China remained attractive particularly for consumer, IT, healthcare and insurance sectors.

The firm agreed the markets would remain volatile as the US/China trade war discussions were unlikely to be resolved soon but that the four long-term fundamentals were unchanged by the noise.

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These were growing consumer demand and robust consumption growth, continuing urbanisation, strong investment by companies in research and development and the ageing population which created demand for healthcare and insurance.

Head of China equities at UBS, Bin Shi, said: “We’re confident these fundamentals still have much more room to grow and that means opportunities on China’s equity markets for disciplined investors.

“Current valuations on China’s equity markets remain attractive on both historical measures and compared to other markets in the Asia-Pacific region. Now that reforms such as Stock Connect have opened up China’s onshore equity markets, an All-China approach that allocates to the best equity opportunities whether in onshore or offshore China markets may offer the best way for investors to capitalise on the many opportunities in the China equity space.”

Earlier this week, the Chinese were accused on manipulating their currency after the renminbi fell below seven against the US dollar for the first time since May 2009.

Performance of Shanghai Composite Index and MSCI China over one year to 6 August, 2019

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