UBS: Foreign Investors' Appetite for Chinese Assets Rises, Significant Room for Further Allocation Remains

At a recent media seminar, Hu Zhizhi, President of UBS Group China and Chairman of UBS Securities, and Chen Ge, Co-Head of Global Investment Banking at UBS Securities, stated that the allocation ratio of global active management funds to Chinese stocks has rebounded from a low of approximately 5% in Q4 2024 to nearly 7%, yet still lags behind the historical high of around 15% in 2021. Chinese assets remain underweight in global active fund portfolios, leaving substantial room for further allocation.

Earnings improvement has become a key basis for UBS's bullish outlook on Chinese assets. UBS data shows that A-share overall earnings growth in Q1 exceeded 7 percentage points. Based on this, UBS has raised its full-year A-share earnings growth forecast to 11%.

Hu Zhizhi noted that A-share market liquidity has continued to improve in recent years, with industry and thematic ETF scale growing nearly threefold over the past two years, rising from CNY 500 billion to the current CNY 1.5 trillion. The UBS research team believes that the RMB is the most fundamentally supported core currency globally this year, with 3% to 4% appreciation potential against major currencies, which will provide additional incentives for overseas investors to participate in A-shares.

Regarding the Hong Kong stock market, UBS believes it has remained highly active this year with significant structural changes, as hard-tech and new quality productive forces enterprises have become the absolute backbone of new share issuances. Data shows that tech-innovation enterprises accounted for 63% of Hong Kong IPO issuance size year-to-date, a sharp increase from 16% in the same period last year.

Financing scale has also maintained rapid growth. Chen Ge introduced that Hong Kong financing reached approximately USD 43 billion in the first five months of 2026, a significant increase from USD 28 billion in the same period last year. UBS research expects full-year Hong Kong IPO financing to reach USD 45-50 billion, and remains confident that the Hang Seng Index will break through the 30,000-point target this year.

Notably, the Hong Kong convertible bond market has heated up noticeably this year. Hu Zhizhi stated that the Hong Kong convertible bond market has experienced explosive growth, with financing scale already surpassing traditional share placements and rights issues. Some high-quality enterprises have been able to issue zero-coupon or even negative-yield convertible bonds, completing large-scale financing at nearly zero cost.

The structure of foreign participation in Hong Kong IPOs is also evolving. Chen Ge noted that five years ago, US investors accounted for approximately 30-40% of Hong Kong IPO investors, which has now declined to about 20%; meanwhile, European and Middle Eastern investors have increased their share from about 20% to 30-40%.

Looking ahead to the second half of the year, Hu Zhizhi believes that the core momentum of China's capital market will likely be driven by substantive growth in corporate earnings. UBS favors two categories of assets: first, large-cap tech leaders benefiting from the global rollout of AI applications and technological self-reliance; second, small and mid-cap enterprises with structural overseas expansion capabilities.