UBS China Equity Strategy: Preference for a Barbell Strategy
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Key Views
- Chinese AI hardware and technology share prices, on a year-on-year basis, correlate with actual capital expenditure by China's hyperscale cloud providers, making capex a variable to monitor closely.
- Credit spreads have recovered and local government financing vehicle (LGFV) debt growth has slowed; high-yield credit spreads are performing well, and the S&P 500 price-to-earnings ratio relative to sales growth sits near lows.
- Liquidity is tracked through quarterly southbound net inflows net of equity financing, alongside mainland mutual funds' holdings of H shares.
- Technology hardware and construction are highlighted as focal sectors.
Outlook
China's producer price index (PPI), year on year, is mapped against MSCI China revenue growth, while bottom-up price trends—including improving China airfares—offer supporting evidence. A map of China and global AI technology hardware completes the analytical framework.
Key exhibits
Exhibit 1
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Exhibit 7
