Chinese Stocks Will Struggle Despite Economic Support, UBS Says

  • A positive turning point for China’s markets and economy is “still a long way off,” despite Beijing’s economic stimulus efforts, UBS said.
  • China’s central bank recently issued a $70 billion bailout.
  • The outbreak of COVID is taking a toll on the world’s second largest economy.

Chinese stocks are unlikely to rise higher as the COVID-19 virus continues to weigh on the impact of government efforts to combat the slowest economic growth in years, UBS Global Wealth Management said.

The company outlined Beijing’s recent efforts to support the world’s second-largest economy, which is increasingly focused on international markets as protests in the country against COVID-19 restrictions intensify.

Last week, the People’s Bank of China freed up 500 billion yuan ($69.4 billion) for the economy by cutting the reserve requirement ratio for most banks by a percentage point. 25.

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The central bank also plans to provide soft loans to financial firms to buy bonds issued by real estate developers, Reuters reported. And according to Bloomberg, six major commercial banks of the state have pledged about $ 179 billion in financial support to real estate developers.

“But despite the latest moves, a positive turning point for the Chinese economy and markets is still a long way off, in our view,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. , in a note released Monday.

“Policy support remains focused on strengthening the economy, not promoting growth, in our view. As a result, we remain neutral on the Chinese equity. We also think that it may be China’s recovery will also pose a risk to the global economy and markets,” UBS said, advising investors to focus on safe-haven assets and fixed income assets. .

Key Chinese economic indicators have fallen this year due to a mix of investor concerns, including China heading for its slowest economic expansion in three decades. China’s GDP grew by 3.9% in the third quarter. The Shanghai Composite fell more than 15% and Hong Kong’s Hang Seng Index fell 26%.

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UBS said the main obstacle to the Chinese economy is the growing COVID-19 pandemic, with 32,000 cases a day more than the roughly 29,000 seen in mid-April during the lockdown there. Shanghai, the country’s largest city.

“The spread of the disease is also a concern, so this wave could be more damaging than in April, when the case was concentrated in Shanghai. This led to the tightening of restrictions,” Haefele said.

Among the restrictions, Shanghai barred newcomers to the city from dining, markets and other entertainment venues for the first five days.

“We don’t expect to be fully open until the third quarter of next year,” he said.

So far, the supply problem is less severe than during the April COVID-19 outbreak because the wave has not spread to China’s major ports or manufacturing facilities, Haefele noted. . But the risk remains that they could worsen if the outbreak spreads, possibly affecting exports of machinery and household appliances, UBS said.

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In a rare show of dissent, thousands of people across China demonstrated against the country’s zero-covid-19 policy that calls for a shutdown when the virus is detected. Meanwhile, hundreds of workers clashed with guards at China’s largest iPhone manufacturing plant. Apple faces a risk of up to 10% of iPhone production from protests in China, Wedbush said on Monday.

For China’s property sector, UBS said government support appears to “limit the damage” rather than boost growth faster.

“In our view, recent political actions will give real estate developers more time to deal with maturing US dollar debt. However, this may not lead to a surge in real estate sales,” he said. , and he added that the scene could be like a scene. leading to a broader economy without recovery in demand.


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