UBS China Equity Strategy: The Impact of Fed Rate Hikes on the China Equity Market
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UBS reviews how past Fed hiking cycles have affected Chinese equities. US rates and the China equity market are negatively correlated, but the relationship is unstable and Chinese stocks are driven mainly by domestic factors — the 2015/16 deleveraging shock and the 2022 reopening, for example. A-shares have historically been less sensitive than H-shares to external rate shocks, as H-shares depend more on foreign fund flows. Sector patterns are fairly consistent: domestic-demand sectors such as consumer and internet tend to outperform during hiking cycles, while data centers, biotech/CRO, brokers and export-oriented groups such as shipping and wind equipment tend to lag, reflecting dollar funding dependence and the drag high rates impose on global trade. High oil prices combined with Fed hikes make Chinese equities relatively attractive versus other regions, given lower oil dependence in energy production, limited foreign-flow impact on A-shares, rising EV penetration and controlled price pass-through. Constraints remain: consumption is still weak and foreign active positioning is around five-year highs. With UBS US economists not expecting a prolonged hiking cycle, the bank keeps its barbell — memory, foundries and semicap equipment within tech; banks, non-ferrous metals and going-global names outside — viewing hike-related pullbacks in the latter as buying opportunities.
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