UBS has revised its year-end target for the MSCI China Index downward to 78 points, according to Wang Zonghao, Head of China Equity Strategy Research at the firm. The adjustment retains the 10% earnings growth forecast for 2026 but adopts a more conservative valuation framework, reflecting reduced liquidity conditions, elevated global interest rates, and ongoing geopolitical uncertainties.

Wang indicated that given the current trajectory of consumption growth in China, the firm is inclined toward a barbell investment approach. One end of this strategy focuses on companies benefiting from structural growth, including AI technology hardware and leading exporters, while the other end allocates to bank stocks, which serve as defensive positions offering high dividend yields.

Additionally, Wang expressed a preference for A-shares over H-shares, citing the former's greater exposure to hardware technology. A-shares are also positioned to receive state-backed capital support and benefit from mandatory long-term fund inflows. Within the technology sector, UBS holds a favorable view on memory, wafer foundries, and semiconductor equipment. Beyond technology, the firm prefers banks, non-ferrous metals, and stocks with overseas expansion potential.

Regarding regulatory adjustments to offshore trust taxation rules in China, Wang noted that such changes could prompt major shareholders to reduce their stakes. However, the overall market impact is likely to be limited, as state-owned enterprises remain unaffected and certain company founders have already fulfilled their relevant tax obligations.