UBS’s Fang highlights a strategic pivot toward China’s technology and consumer sectors, citing improving valuations and policy tailwinds. Key indices SSEC and HSI show signs of recovery, while the CNY stabilizes amid renewed market confidence.
- SSEC (000001.SS) up 12% YTD, HSI (0388.HK) up 15% on policy and sentiment shifts
- Technology sector trades at 30% discount to 5-year average valuation
- CNY stabilized at 7.15/USD amid controlled capital flows
- Net inflows into A-shares reached $4.3 billion in December 2025
- UBS recommends overweight in tech hardware, digital infrastructure, and consumer brands
- Caution issued on property-linked financials due to lingering sector risks
UBS strategist Fang has issued a revised outlook for China’s equity markets, emphasizing a shift in investment focus toward technology and consumer stocks amid improving macroeconomic signals. The Shanghai Composite Index (000001.SS) has climbed 12% year-to-date, while the Hang Seng Index (0388.HK) has gained 15%, reflecting growing investor appetite for cyclical sectors. Fang attributes the rebound to a combination of targeted fiscal stimulus, easing regulatory pressures, and a more supportive stance on private sector growth. The strategist notes that valuations in China’s tech sector now trade at a 30% discount to their five-year average, creating an attractive entry point. Consumer discretionary and services are also benefiting from a rebound in retail spending, with PMI data showing factory activity expanding for three consecutive months. These developments suggest a material improvement in business sentiment, particularly among mid-cap firms. Currency dynamics remain sensitive, but the CNY has stabilized around 7.15 per USD, supported by capital controls and a narrowing current account deficit. Fang warns that external risks—especially trade tensions and geopolitical volatility—could influence short-term volatility, but long-term fundamentals are strengthening. The rebalancing of portfolios toward Chinese equities is already visible in regional fund flows, with net inflows into onshore A-shares reaching $4.3 billion in December 2025. UBS recommends overweight allocations in technology hardware, digital infrastructure, and high-quality consumer brands, while cautioning against overexposure to property-linked financials.