As the Chinese government continues to shift domestic policy to support the economy, UBS Asset Management is becoming even more optimistic on China's equity market.
Citywire AAA-rated Bin Shi, who is the company's head of China equities, said UBS expects to put more cash to work going forward.
During the first half of 2018, UBS increased its cash levels due to weaker sentiment and heightened market volatility.
The manager, however, recently deployed some of that cash, Shi noted in the firm's latest investment outlook report.
Shi said there has been a significant change in the Chinese government’s policy stance and attitude.
One example is BMW’s recent move to take majority control of its local joint venture with China-based automaker Brilliance Automotive.
This indicates that the Chinese government has opened up key industrial sectors to investment from overseas companies.
This reversed its earlier position of limiting investments into China, which has been a key source of disagreement in the US-China trade dispute.
Some of these policy changes provide hope for a reduction in US-China trade tensions, which have also been a contributing factor to market volatility.
In addition, the Chinese government has also reversed a series of tough policies – such as a social security tax and taxes on private equity investments – that were introduced earlier this year.
Diminishing systemic risk
The change in Chinese government policy and the increased possibility of a resolution to trade issues means that systemic risk in the Chinese equity market has diminished significantly.
Shi said these changes in China’s domestic policies are highly significant.
Previously, the government’s tough approach to broader regulation and to debt deleveraging has hurt investor confidence and has been the biggest influence on the market this year.
However, Shi said the new policy support has not yet been fully understood or absorbed by the market. ‘We believe it will positively impact investor sentiment going into 2019.'
Shi said UBS will likely be less defensive in its equity allocations in the near future, but will maintain its focus on companies that it believes will deliver growth over the long-term.
‘We continue to be positive on new economy companies in sectors like consumer, IT, and healthcare,' he said.
Additionally, UBS will most likely to add exposure to online gaming and education sectors as he expects relaxations of certain regulations in the sectors.