UBS has reaffirmed an Attractive rating on Chinese equities and adjusted its Greater China focus list to reflect what it views as winners from the country's AI expansion.
In a note outlining the changes, Eva Lee, head of Greater China equities, said the bank retains a preference for China's technology sector on the basis of strong AI-driven growth, leadership in innovation, and supportive policy trends. She identified stocks tied to semiconductor equipment, foundry operations, AI supply chains and internet platforms as best positioned to capture accelerating monetization, the effects of chip localization, and incoming international capital.
The bank added five names to its focus roster, specifying target portfolio weights. Zhongji Innolight and GDS were included at weights of 4.0% and 3.0% respectively. Agricultural Bank of China was added at 4.0%, while JCET Group and Innovent Biologics were included at 2.0% each.
UBS cited specific growth drivers for several additions. On Zhongji Innolight, the bank highlighted the transceiver business as a growth area as AI spending broadens beyond core AI computing chips to include connection devices. UBS also noted that Nvidia's new chip design incorporating embedded co-packaged optics could provide an incremental growth avenue for Innolight.
The bank described JCET, as China's leading outsourced assembly and test firm, as a logical beneficiary of chip localization efforts, positioning it to capture demand as domestic semiconductor supply chains expand.
At the same time, UBS removed several names from its focus list. Companies dropped from the roster include China Pacific Insurance, Dongfang Electric, Kuaishou, LONGi Green, New Oriental Education and PICC Property and Casualty. The bank also reduced Tencent's weight by six percentage points.
Looking ahead, UBS expects mid-teens returns from Chinese equities by June 2027. Within that outlook, the bank signaled a preference for semiconductor capital equipment companies and AI supply-chain names over internet platforms, reflecting its view on sources of durable growth tied to AI investment.
Added to UBS Greater China focus list (weights):
- Zhongji Innolight - 4.0%
- GDS - 3.0%
- Agricultural Bank of China - 4.0%
- JCET Group - 2.0%
- Innovent Biologics - 2.0%
Removed from UBS Greater China focus list:
- China Pacific Insurance
- Dongfang Electric
- Kuaishou
- LONGi Green
- New Oriental Education
- PICC Property and Casualty
UBS view: mid-teens returns for Chinese equities by June 2027, with a tilt toward semicaps and AI supply-chain names versus internet platforms.