China ** newspaper Wu Juanjuan.
On 8 January 2024, the 24th UBS Greater China Conference was held in Shanghai, China. The symposium brought together more than 3,000 professionals and attracted more than 1,500 institutions and 2,200 UBS clients in person. Among them, the number of institutional participants and UBS Group customers reached a record high.
This year's symposium was also the first since UBS completed its acquisition of Credit Suisse. At present, the total assets of the Swiss financial giant exceed 5 trillion US dollars, which is equivalent to about 356 trillion yuan.
In his speech, Mr. Ming, Head of Global Financial Markets at UBS, said that despite the challenges experienced in the Chinese market in the past two or three years, global investors have always paid attention to the Chinese market. He said that during this period, exchange-traded or short- and medium-term strategic investors actively participated in investing in the Chinese market.
The MSCI China Index has 15% upside in 2024
Lian Peikun, director of Greater China Research at UBS Global Investment Bank, said that the UBS**, MSCI China Index has 15% upside in 2024. He believes 10% of that comes from earnings growth and 5% from rising valuations.
Valuation: MSCI valuations are currently at the bottom of the range. The MSCI China Index is trading at a price-to-earnings ratio of about 8 times, which is two standard deviations below the historical mean. "This Greater China Symposium has attracted a lot of long-term investors to China. They see attractive valuations in the Chinese market." In terms of earnings growth: UBS** corporate revenue will grow by 7% in 2024, and higher profit margins will contribute another 3% to earnings growth. Combined, corporate earnings growth will be around 10% in 2024.
In addition to A-shares, Lian Peikun also has constructive views on Hong Kong stocks, believing that Hong Kong stocks are expected to outperform A-shares in 2024. The main reasons include, first of all, the current low level of foreign capital in Hong Kong stocks. Second, institutions expect the Fed to start cutting interest rates in 2024, and the pressure on emerging markets will ease. As an offshore market, Hong Kong will be the first to benefit if capital flows into emerging markets, including Chinese mainland. Finally, the key sectors in Hong Kong stocks are attractive. For example, in the Internet sector, the previous policy adjustment has ended. UBS expects the Internet sector to grow 23% in 2024, significantly outpacing the average earnings per share growth of the MSCI China Index.
The profit recovery of A-share industrial enterprises has been initiated
Meng Lei, a strategic analyst at UBS China, expects earnings growth of about 8% in 2024. The reason for this, he pointed out, UBS** China's GDP growth rate in 2024 is 53%。He believes that there is a strong correlation between corporate earnings and nominal GDP growth. For example, historical data shows that there is a strong correlation between the performance of the non-financial sector and nominal GDP growth.
In the past two or three years, due to the disruption of the epidemic, corporate profit margins have been on the weak side. However, the data is already showing signs of recovery. Meng Lei cited data to say that the profits of China's industrial enterprises have increased by nearly 8% year-on-year in the third quarter of 2023, although the current monthly data is still relatively volatile. He further explained that in October 2023, the year-on-year growth rate of profits of China's industrial enterprises was in the low single digits (between 1% and 5%)In November 2023, the profits of China's industrial enterprises increased by 20% year-on-year. The data shows that corporate earnings are recovering. However, the market has not yet reacted to this.
Meng Lei said that there are three reasons behind the optimistic expectation of the A** field in 2024. First of all, corporate earnings have been, and this has not yet been reflected by the market. Second, monetary policy, fiscal policy, credit policy and real estate policy are all continuing to exert force. Finally, investors adjust their expectations as the market improves. And with the collapse of huddle stocks, ** market opportunities will appear.
In terms of allocation style, in the short term, he believes that value stocks are preferred. "It's still in a weak environment, and value stocks are worth watching." Historical data shows that the performance of CSI 300 growth compared to CSI 300 value is highly correlated with Wind All A Index. This shows that when the market is the best, investors like growth stocks. When the market is the best, investors like value. Although he is bullish on value stocks in the short term, he is still bullish on growth stocks in the long term.
Outside of value stocks, dividend and high-dividend indices are attractive in the short term. In addition, congestion in the consumer sector is now near historical median levels. The congestion of the new energy sector has returned to the level of 2017 and 2018. These two sectors are more welcome to institutional funds. At present, there is limited room for further downward congestion in these two major sectors. This means that if the institutional huddle further collapses, the downward pressure on the market will be limited.
The adjustment of Hong Kong stocks may be due to the uncertainty of the Fed's interest rate hike expectations
Since the beginning of the year, Hong Kong stocks have been continuously **. Lian Peikun believes that one of the important reasons behind this is that the Fed's expectations of interest rate cuts have wavered, and the market has fluctuated. He believes that the direction of the Fed's interest rate cut in 2024 is more certain, but there is still uncertainty about when it will cut interest rates. This has a greater impact on the offshore market, including the Hong Kong market. He is optimistic about Hong Kong stocks in 2024, especially the technology and Internet sector.
Meng Lei believes that the current phenomenon of A-share institutions is further disintegrating. As evidence: the range of institutional heavy positions** is significantly greater than the market average. At the same time, the institution ** migrated. Some of the high dividends** are in the spotlight. He believes that everyone is still looking for value and stability. Investors' confidence in the economy and the confidence of the market are in the process of rebounding. This is why economic fundamentals have begun to recover, corporate earnings are growing, and the market has not yet priced in.
Asked what kind of evidence emerges before investor confidence is restored?Meng Lei mentioned that at the policy level, everyone is concerned about this year's fiscal deficit ratio target, etc., and is waiting for further policy developments in February 2023 or beyond. In terms of corporate earnings, corporate earnings recovered significantly in the third quarter of 2023. Investors are focused on earnings recovery in the first quarter of this year.
This article** is from UBS. ）
Editor: Joey.
Review: Muyu.