UBS unfazed by wobbly start for China markets, says equities to be higher at end of 2025

UBS says institutional investors like insurance companies are drawn to stocks as Chinese bond yields have fallen rapidly

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Zhang Shidongin ShanghaiandDaniel Renin Shanghai

Published: 6:06pm, 13 Jan 2025

Mainland-listed stocks are likely to be higher at the end of 2025 thanks to improved corporate earnings and policy support from Beijing, UBS Group said, despite a shaky start to the year.

Corporate earnings for mainland-listed firms could grow by about 6 per cent in 2025 from 5 per cent a year earlier, Meng Lei, a strategist at the Swiss bank, said at a briefing in Shanghai on Monday. He also said China is likely to end its deflationary trend, which has lasted more than two years, as top policymakers roll out stimulus policies and crack down on industrial overcapacity. Many investors believe deflation in China is holding mainland-listed stocks back.

“We’ll probably see 6 per cent profit growth from a pretty low base this year and that’ll [give] confidence to lots of investors,” Meng said. “Producer prices will see an improvement and may proceed to zero or even [into] inflation. With such a backdrop, companies will have stronger pricing power, which will provide very big support for the profit margins of listed companies.”

Despite the benchmark CSI 300 Index’s 5 per cent decline this year, UBS has joined HSBC Holdings and Goldman Sachs in saying mainland-listed stocks would post a gain for the year. That puts them at odds with many investors who are spooked by China’s lingering deflation and the prospect of more tariffs from the incoming administration of president-elect Donald Trump in the US. Investor sentiment has also been hurt by a lack of clarity from Beijing on the implementation of future stimulus policies.

Meng said China’s pivot to looser fiscal and monetary policies, mentioned at two high-level meetings at the end of last year, would support stocks. UBS’s macro team believes Beijing would raise the government’s borrowing limit to the equivalent of 3 to 4 per cent of gross domestic product, while reducing borrowing costs by 30 to 40 basis points this year. The macro team said China would issue at least 2 trillion yuan (US$272.8 billion) worth of special government bonds to support growth.

On top of that, Meng said he expects the government would move to support factory-gate prices by reducing excessive capacity in some industries. China’s producer prices fell 2.3 per cent in December, the 27th consecutive month of decline. Consumer inflation was flat.