Investing.com– UBS analysts said they preferred Chinese stocks the most among their Asian peers, and added two more stocks to its focus list for the country citing holdings in internet stocks and defensives as the best mix of China exposure.
UBS expects China to outperform broader Asian markets this year with high single-digit returns from the index.
The brokerage outlined a “barbell” approach to investing in China, with holdings in defensive sectors, such as financials, utilities, energy and telecoms, and in growth names, chiefly internet stocks.
To this end, the brokerage added ecommerce firm JD.com (HK:) (NASDAQ:) to its focus list for China, citing steady revenue growth and strong margins.
Strong cashflows for JD also point to increased buybacks by the firm, while recent stimulus measures, especially those for the property market, are expected to benefit the firm.
“The key risk to our view is more intense competition in China’s e-commerce sector, which could lead to lower margins and higher spending on sales and marketing,” UBS analysts said.
Among defensives, UBS added China Communications Construction (HK:) to its China focus list.
The brokerage said it expects the firm to benefit from a slew of supportive property and infrastructure measures outlined by Beijing, especially plans to increase spending on new infrastructure projects.
The planned set-up of an infrastructure real estate investment trust in China is also expected to provide stronger cash flows for the firm.
Overall, UBS said that Beijing’s measures to support the property market were likely to begin bearing fruit in the third quarter of 2024, with a balanced housing market also set to help stabilize weakening consumption.
“We suggest investors add growth exposure in the near term while maintaining some exposure to the defensive segment which should provide more resilient earnings and attractive dividend yields,” UBS analysts said.
In the longer term, UBS expects Chinese growth stocks to slow and favors stocks with high consumer exposure and strong potential for global expansion.
