Name: 2026 could be a bigger year for China’s market performance: UBS
Uploaded: 2026-01-08T09:53:58.506Z
Duration: 4 min 20 s
Description: UBS’s Thomas Fang says China equities still offer meaningful upside after a strong 2025, supported by earnings growth, attractive valuations and policy support. He highlights AI, technology and high-end manufacturing as key investment drivers, argues China is narrowing the gap in the global chip race, and says international investor interest in China is picking up.

UBS’s Thomas Fang says China equities still offer meaningful upside after a strong 2025, supported by earnings growth, attractive valuations and policy support. He highlights AI, technology and high-end manufacturing as key investment drivers, argues China is narrowing the gap in the global chip race, and says international investor interest in China is picking up.

Shanghai

UBS analysts remain optimistic about China's market prospects for 2026, setting an MSCI China year-end target that implies a 14-15% upside. The forecast is driven by expected earnings growth, favorable valuations compared to global peers, and policy support from Beijing as China enters the first year of its 15th five-year plan.

Key areas of focus include technology, artificial intelligence, chip manufacturing, electric vehicles, and high-end manufacturing, with international investors showing renewed interest. China’s drive for self-sufficiency in technology and a temporary easing of US-China tensions are seen as supportive factors, with 2026 projected to be a standout year for both absolute and relative market performance.

2026 could be a bigger year for China’s market performance: UBS

After such a strong 2025, it's very difficult not to be optimistic. So our house view, you know, we're looking at MSCI China target of the year at 100, wrong number, which implies about, you know, 14, 15% upside from there. We see EPS growth. This is the first year of the 15th five year plan of China. We're definitely looking forward to more accommodative policy from Beijing as well. In terms of these equity gains, it's expected to be earnings driven. In particular, by what? Is it policy initiatives? Is it going to be growth drivers in the AI space in technology? What are your thoughts? So we look at broad market, roughly about 10% EPS growth. The other, you know, 5% is from the re-rating. So we look at the valuation across the board. So we think China is still cheaper, roughly about 15% cheaper from a PE perspective versus the global peers. So to your point in terms of the investment scene, I would like to say it's more the technology and the innovation. Obviously, AI is a key component of it, but it's broader than that. It is the chip making, the EVs and then the high end manufacturing. So that really drives the international investors focus, but also broadly on the, you know, some of the selective consumer names. And then there are also people hope even on the property sector as well. I'm going to get to property in just a minute. So when you're talking about AI, it makes me think about what we're seeing from China and this self-sufficiency drive. The latest to come through in the reports that China is calling on companies to just use domestic chip makers. As far as the H200 is concerned, don't use that. Even though we're seeing strong orders, according to Jensen, they want to be domestically capable and for the companies to rely on their own companies. How does this impact your investment theories? I think the self-reliance is definitely one of the themes in the bigger AI as well as high-tech manufacturing for China and also for investing. But at the same time, as you rightly point out, so the government will have some indicative policies, but it's not about suspension. They give some guidance. You know, we hope you will do more domestic. But at the same time, I think with this one year sort of truce between US and China, it gives a lot of energies and also momentum for Chinese companies to use both domestic as well as Nvidia chips to make sure they stay ahead of the game in their own space. I want to put you on the spot a little bit here, but are Chinese chip makers, are they capable enough to meet the demands in artificial intelligence right now? So we run this, you know, every day, right? So we have, you know, more than 600 companies under our coverage, more than 100 analysts really looking for those answers. So I think the jury is still out, but I have seen more positive news, whether it's from the entrepreneur, from the user, from the investor, China is really catching up. It is a tough race, right? Because everybody is racing ahead. So when you are a little bit behind to really go running and also overtake the frontrunner, it's not that easy. But overall, I would say, you know, so China is doing quite a good in terms of the race in the AI space, especially on the chips. Is there international investor interest in this space? Is China investable? Oh, yeah. So China is obviously, you know, last year, we have already seen a huge amount of focus on refocus from global investors. We will have our annual conference in Shanghai next week with record investors coming, really focusing on those sectors we discussed about. And yeah, so investors are very keen on those sectors and then putting money into that. And I would say 2026, on the back of a very strong 2025, could be an even bigger year for China, both for absolute and also relative performance in the global market.

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