UBP has cut its tactical negative stance on Chinese equities, upgrading their rating from one to two.
The Swiss pure-play private bank said that it took the decision after some near-term positive trends in the Chinese economy as well as potential long-term reforms that could be announced during the upcoming plenum.
Only last week, Beijing announced that the country’s consumer price index edged up 0.3% in April in a sign of an economic rebound. China had been caught in a deflationary spiral for almost a year.
The plenum is a key meeting of the Chinese Communist Party’s central committee, which typically occurs during the autumn but was pushed back until July this year. Beijing has already pledged to introduce reforms at the upcoming meeting.
UBP has been diversifying its equities exposure geographically lately, entering the Indian market and bolstering their investments in the UK and Switzerland during the first quarter.
Despite the sell-off in global equities which occurred in April as the higher-for-longer narrative took hold, UBP is bullish about the prospects for the asset class broadly over the rest of the year.
It noted that first-quarter earnings fared better than expected, up 7% for the S&P 500, albeit this was largely driven by mega-cap tech companies.
“Other sectors continued to struggle with negative average earnings growth for the first quarter, but this trend is expected to reverse in the upcoming quarters, justifying a projection for a broadening of sector participation,” it said.
Regarding fixed income, UBP noted that its convictions were characterised by the changing interest rate environment with the Swiss bank’s base case now being that the US Federal Reserve will not begin cutting until December.
“Against the backdrop of constrained potential for spread compression, coupled with a favourable macroeconomic outlook, returns within the fixed-income realm are poised to derive essentially from carry,” it said.
“Consequently, we have initiated a realignment of our high-yield allocation, transitioning away from short-dated securities towards intermediate maturities boasting superior yields.”
