Is the China stock rally still worth chasing? UBS weighs in

Investing.com– Chinese stocks marked stellar gains over the past three weeks, racing to two-year highs amid optimism over more stimulus from Beijing, although the rally now appeared to be cooling. 

UBS analysts said that while Chinese stocks were not as cheap as they were a month ago, there was still more value to be gained, and that they maintained their arguments for an Overweight rating on local stocks. 

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes were trading up between 16% and 20% since late-September, and had briefly hit two-year highs earlier in October. 

While the rally appeared to have fizzled out in recent sessions, amid some middling economic readings and mixed cues on stimulus, UBS still maintained a positive outlook. 

UBS noted that the overall direction of Chinese stimulus policy was positive, even though Beijing appeared to be dragging its feet on some fronts. But the brokerage noted that Beijing had provided more clarity on the intention of its planned fiscal measures, and that more details were likely to “trickle in” over the coming months, as the government approved increased spending.

China’s Ministry of Finance had last week announced a slew of fiscal measures, including more debt issuance and support for provincial governments, property market relief and increased fiscal spending.

But investors were still underwhelmed by a lack of details on the timing and scale of said measures, as well as a dearth of measures aimed at boosting personal consumption. 

UBS noted that China’s recent rally coincided with heavy capital outflows in major emerging market peer India. This suggested a potential turning in sentiment, with UBS stating that the trend was in line with its Underweight rating on India within EMs.