UBS: Four Strategies for Market Re-Risking in Chinese Equities
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UBS outlines four strategies for market re-risking in Chinese equities as de-risking nears its end and Middle East geopolitical tensions ease. First, valuation repair focuses on sectors that corrected sharply since March despite limited fundamental impact, including non-ferrous metals, defense, electronics, and computers.
Second, a cyclical style leverages improving industrial data. China's PPI decline narrowed to -0.9% year-over-year in February 2026, and industrial profits grew 15.2% in January-February 2026. CSI 300 earnings growth consensus has been revised upward since March, with IT and materials seeing the largest upgrades, mirroring patterns from 2017, 2019, and 2021.
Third, globalization remains compelling. Despite RMB appreciation and geopolitical risks, exports grew 21.8% year-over-year in dollar terms during January-February 2026. Overseas revenue share for A-share non-financial companies rose from 15.8% in 2022 to 16.7% in 2024, with overseas gross margins also improving.
Fourth, incremental capital flows from ETFs, leverage, hedge funds, and insurance favor growth and small-caps short-term. Medium-term ETF expansion may favor industry leaders and cap small-cap outperformance. Insurance allocations may diversify beyond high-dividend names as government bond yields rebound.
The report lists ten top A-share picks with 16%–65% implied upside, including NAURA Technology, Wanhua Chemical, Sungrow, Universal Scientific, Han's Laser, and Kedali.