UBS: China/HK Mid & Small Caps: Energy Upcycle, AI Adoption, Capacity Relocation, and Deflation
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UBS highlights that the global energy upcycle, driven by AI, diversification, and electrification, will persist through 2030, benefiting Chinese energy equipment manufacturers. The firm also identifies a turning point for smart glasses, projecting a global market size of $42 billion by 2030 and $117 billion by 2040.
The report covers 22 mid- and small-cap stocks, assigning Buy ratings to 17, Neutral to three, and Sell to two. Top picks include Neway Valve (603699.SH) with a target price of RMB 70, Nanjing Defu (688377.SH) targeting RMB 51, and Conant (2276.HK) targeting HK$67.
Neway Valve is positioned to capture share in the high-end valve market, expected to reach $29 billion by 2030. Nanjing Defu leverages its manufacturing capabilities to gain share in subsea production system components from Western competitors. Conant benefits from the smart glasses revolution, where prescription lens demand is expected to expand the total addressable market by 12%.
Additionally, the report analyzes new beneficiaries of capacity relocation amid the US-China trade 2.0 phase. Companies with established overseas operations are favored as tariff differentials widen. While deflation pressures persist across various sectors, niche markets like energy equipment remain robust due to strong structural demand.