UBS sees A-share market rebound in third quarter

UBS Securities expects a rebound in China's A-share market in the third quarter, with a gradual easing of macroeconomic pressure, further policy efforts and the COVID-19 pandemic effectively under control.

Looking ahead to subsequent investment opportunities in the A-share market, Meng Lei, strategic analyst of UBS Securities China, believed that in the short term, it will be hard to see any significant upward revision in market valuations.

The second quarter will likely be more of a choppy period for the domestic stock market, Meng said.

But taking into consideration the gradual release of macroeconomic pressure, pandemic being put under control and authorities making further policy efforts, the third quarter is expected to bring a general rebound in A shares, he predicted.

Among sectors, UBS recommended an overweight rating for industries including food and beverage, household appliances, power battery-related, and renewable energy, while banks, auto parts, leisure services, textiles, and real estate were underweight.

In terms of foreign capital, Meng pointed out that there will not be a significant outflow of foreign capital from the mainland market this year, although the influx may be smaller than expected in early 2022.

Subsequently, as the pandemic gets quelled and life and production return to normal, a pullback is expected in overseas investors' economic expectations for China.

This, coupled with the implementation of supportive policies, will trigger the return of a large amount of foreign capital to A shares, Meng noted.