A particular opportunity in Chinese stocks – UBS

Economists at UBS forecast a U-shaped recovery and expect Chinese equities to outperform developed markets.

Key quotes

“In our central scenario, we see the second quarter marking the lowest point in economic activity, and we expect a subdued U-shaped economic recovery from the third quarter onwards, as a second wave could lead to recurring restrictions. Renewed outbreaks mean that intermittent suppression measures, including partial lockdowns, are likely, and we project economic activity to only normalize sustainably in December.” 

“US-China tensions may heat up as the US election nears, but we believe the economic recovery remains far more important for investment sentiment.” 

“Further upside for equity markets as a whole would likely require additional fiscal or monetary stimulus, greater clarity about exit strategies, or a medical breakthrough.” 

“We expect Chinese equities to lead the recovery, outperforming developed market ex-US stocks, as China is likely already in the advanced stages of the virus outbreak cycle.”