"Major Banks" UBS: Hong Kong stocks and A-shares have not fallen into extreme pessimism, a balanced investment portfolio remains the best strategy

UBS published a report on the Chinese market, stating that due to the Hang Seng Index and the CSI 300 Index both falling nearly 4% on Monday (23rd), the market seems to be in a state of indiscriminate selling. Compared to historical sell-offs, this is one of the worst 30 days in the past decade. The core question for investors is: Is now the time to buy the dip? After comparing the current situation with historical extreme downturn events, the conclusion is that while there are some signs of disorderly selling, the market is still some distance from extreme pessimism.

In light of the uncertainty in the geopolitical environment, the bank continues to prefer A-shares and believes that a balanced portfolio remains the most viable strategy. The bank listed a forecast of potential outperforming Chinese stocks during the period of rising oil prices, including PetroChina (00857.HK), CNOOC (00883.HK), Dongfang Electric (01072.HK), BYD (01211.HK), Li Auto (LI.US), China Mobile (00941.HK), CITIC Bank (00998.HK), China Construction Bank (00939.HK), Bank of China (03988.HK), and Industrial and Commercial Bank of China (01398.HK).

The bank noted that looking back at six extreme pessimistic events in the past decade, the market rebounded by an average of 23% within three months. Common characteristics of these events include: the volatility index (VHSI) breaking 35, low trading volume in A-shares while short selling in H-shares is high, MSCI China valuations dropping below a price-to-earnings ratio of 9.5, a sharp depreciation of the RMB, a significant decline in government bond yields, and a large number of stocks recording negative returns. Currently, only the short selling volume and the number of stocks with negative returns are close to historical lows, while the other indicators have not yet reached warning levels.

UBS stated that in the context of ongoing geopolitical uncertainty, experts recommend that investors maintain a balanced portfolio and prefer A-shares. A-shares have advantages such as potential government fund support, low correlation with global indices, ample liquidity, and policy support. In scenarios where the situation in the Middle East may drive up oil prices, certain sectors are considered to provide a degree of defense, including new energy (electric vehicles and batteries), shipbuilding, oil and gas, certain chemical companies, pig farming, and aluminum mining companies. Although AI-related stocks such as semiconductor equipment and leading internet companies have long-term fundamental advantages, due to crowded positions, these sectors may face selling pressure once market risk aversion increases.

In summary, while there are signs of selling in the current market, it has not yet entered an extreme pessimistic phase. The bank indicates that a preference for A-shares in a balanced allocation, along with a moderate inclusion of sectors that can withstand geopolitical shocks, remains the most robust investment strategy