Still more upside potential

With the transformation of the Chinese economy under way, investors can benefit from new opportunities

28 Mar 2018

On his recent visit to Zurich, Bin Shi, lead portfolio manager; answered questions from clients and colleagues on his outlook for the Chinese equity market and the fund’s strategy. After such a strong 2017, many investors want to know what they can expect in the near future. According to Bin Shi, there are good reasons to be confident. He refers to the fact that the market ins’t overheated and we are now back to the average valuation levels of the last 10 years: „With good earnings numbers this year, there is upside potential in the market, but we shouldn’t expect the same performance as last year.“

The Chinese economy is going through a transformation that has to meet a series of challenges. The most pressing of these challenges include rebalancing the economy from investment to consumer-led growth, addressing the high level of debt in the financial system, managing a rapidly ageing society and creating a cleaner environment. With changes come opportunities. Companies that are well positioned for these changes will do much better than their competitors. Bin Shi mentions the education sector as an example: „Education isn’t a new business, but there are significant changes in terms of how new technologies have an impact on the business. A lot of companies have introduced new technologies e.g. in producing their teaching material, in training their teachers or in tracking the performance of the students. That has changed the competitive landscape.“ TAL Education, one of the holdings in the fund, has adapted these changes very early and has now a competitive edge versus other players in the sector.

Analyzing the market situation and the key figures of a company is one thing, but there is also a lot of information to get from company visits. To meet the management and to have a look on the ground can provide important insights: „Just by looking at the financial statements, you won’t get the full picture. We think that it’s important to know more about the corporate culture. It helps finding answers to questions like „Is a company creating a friendly environment for its employees?“, „Are they very motivated“ or „Have they incentives to do more than they are assigned to?“ etc.“

When asked about the biggest risks for the Chinese equity market in the coming months, Bin Shi refers to the trade relations between China and the US: „We don’t expect a full-scale trade war, but if the tensions became more serious, there would be a clear impact on the markets. Another risk factor are US interest rates. If inflation in the US rose much faster than expected, it would also create pressure on the markets.“

Bin Shi heads up our China equities team which includes seven China specialists. The team forms part of our global emerging markets and Asia Pacific equities team. Bin joined UBS in January 2006 and his investment career dates back to 1994.

> Video Interview

Distribution Partners

In order to proceed, you must confirm that you are a qualified investor based in Switzerland.

For marketing and information purposes by UBS.

For qualified investors/ professional clients only. The information and opinions contained in this document have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith, but is not guaranteed as being accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in the document. UBS Asset Management Switzerland AG and / or other members of the UBS Group may have a position in and may make a purchase and / or sale of any of the securities or other financial instruments mentioned in this document.

Before investing in a product please read the latest prospectus carefully and thoroughly. Units of UBS funds mentioned herein may not be eligible for sale in all jurisdictions or to certain categories of investors and may not be offered, sold or delivered in the United States. The information mentioned herein is not intended to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not a reliable indicator of future results. The performance shown does not take account of any commissions and costs charged when subscribing to and redeeming units. Commissions and costs have a negative impact on performance. If the currency of a financial product or financial service is different from your reference currency, the return can increase or decrease as a result of currency fluctuations. This information pays no regard to the specific or future investment objectives, financial or tax situation or particular needs of any specific recipient. The details and opinions contained in this document are provided by UBS without any guarantee or warranty and are for the recipient's personal use and information purposes only. This document may not be reproduced, redistributed or republished for any purpose without the written permission of UBS Asset Management Switzerland AG. Source for all data and charts (if not indicated otherwise): UBS Asset Management

This document contains statements that constitute “forward-looking statements”, including, but not limited to, statements relating to our future business development. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations.