"Big Banks" UBS: Performance leads, Chinese stocks usually start first, optimistic about Tencent, Alibaba, etc

UBS stated that although, theoretically, past stock price performance should not serve as a guide for future performance, its analysis shows that for Chinese stocks, the best and worst performers from the previous year often exceed the market average by about 15% to 20% in the following year. Interestingly, the bank found that most of the leading advantage of last year's best performers is often realized in the first half of the following year, while the catch-up rally for the worst performers typically occurs in the second half. Although there are significant differences in stock price returns among these stocks, this indeed provides the bank with a perspective for screening stocks for 2026.

In UBS's 2026 outlook, the bank outlined its industry preferences for 2026. The bank maintains its favor for last year's key winners—the technology and internet sectors—because it expects the progress of AI to continue to be a key catalyst. The bank is also optimistic about the solar supply chain, viewing it as an investment target for global energy storage construction and the domestic "anti-involution" theme. Additionally, the bank favors brokerages and some "going overseas" concept stocks that may benefit from increased market turnover and a re-acceleration of global growth (as expected by UBS). On the other hand, the bank has a low allocation for vehicle manufacturers due to reduced government support, tax cuts, and diminishing subsidy effects. Considering the weak outlook for the real estate market, the bank still has a low allocation for the real estate and consumer sectors. That said, these previously underperforming sectors may see a catch-up rally in the second half of the year, with one key catalyst being stronger policy support after the National People's Congress meeting in March.

The following are the stocks most favored by UBS, all with an investment rating of "Buy":

Sungrow Power Supply (300274.SZ)│Target price: RMB 225

Tongwei Co., Ltd. (600438.SH)│Target price: RMB 27.6

CATL (300750.SZ)│Target price: RMB 465

Horizon Robotics-W (09660.HK)│Target price: HKD 13.2

Fuyao Glass (03606.HK)│Target price: HKD 96

Huatai Securities (601688.SH)│Target price: RMB 31.2

NetEase (NTES.US)│Target price: USD 185

North Huachuang (002371.SZ)│Target price: RMB 587.5

Tencent (00700.HK)│Target price: HKD 780

Yutong Bus (600066.SH)│Target price: RMB 38

Alibaba (BABA.US)│Target price: USD 216

Zhaojin Mining (01818.HK)│Target price: HKD 37

GDS Holdings (GDS.US)│Target price: USD 57