As 2025 unfolds, UBS, the prominent wealth management firm, is advising investors to adopt a cautious stance on Chinese equities, citing persistent weak consumer spending and the anticipated impact of new US tariffs.
Eva Lee, Head of Greater China Equities at UBS, emphasized the importance of seeking stocks with attractive dividend yields above 6%, especially as government bonds are yielding only 2%. “There’s a 4% yield gap that I think is very attractive,” she told Bloomberg Television, suggesting sectors like banks, utilities, and energy as potential opportunities.
The outlook for Chinese equities remains uncertain, burdened by concerns surrounding the high levels of debt within the banking and real estate sectors, Beijing’s past regulatory crackdowns on industries like private education and technology, a rapidly aging population, and deteriorating trade relations with the West. In response, the Chinese government unveiled a stimulus package late last year to encourage economic growth.
The China Shanghai Composite Index has seen a 12.3% increase from January 5, 2024, to January 3, 2025, although it dropped by 2.9% on the last trading day of the week. UBS’s Lee remarked that while China has shown a willingness to deploy fiscal stimulus to counteract the effects of tariffs, concerns linger about the speed and efficiency of government responses.
UBS also noted that the geopolitical tension between the US and China is intensifying. As of January 2, UBS Global Wealth Management highlighted renewed fears about the impact of new trade tariffs, with former President Donald Trump reaffirming plans to impose them on China. UBS has cautioned investors about the risk of volatile market conditions in early 2025, urging them to consider structured strategies for long-term portfolio building, particularly in the technology sector.
In the face of these growing tensions, UBS pointed out that China’s Ministry of Commerce recently expanded its export control list, targeting 28 US entities, primarily from the defense sector, in response to national security concerns. Moreover, China is contemplating stricter export regulations on tech components related to batteries and industrial metals such as gallium and lithium. Meanwhile, in the US, the outgoing Commerce Department is considering measures to limit or ban Chinese drones over security concerns, with a final decision deferred to the incoming Trump administration.
This increasingly tense geopolitical environment presents significant challenges and opportunities for investors navigating the Chinese market in 2025.
Related Topics:
