UBS bets on sustained rebound for Chinese stocks as pro-growth policies play out

China’s ongoing stock rebound will probably be sustained for three months as policymakers’ recent measures to boost investment play out to stabilise growth, according to UBS Group.

Cyclical stocks, or companies whose earnings are most reliant on the economic cycles, would lead the bounce and the CSI 300 Index of Chinese big-caps would rise 14 per cent by the year end, said Gao Ting, a strategist with the biggest Swiss bank at a briefing in Shanghai on Tuesday.

The CSI 300 Index of the 300 largest companies on the mainland’s two exchanges has risen 3 per cent after tumbling to a 23-month low on Friday. The bounce was spurred by the government’s pledge to spend more on infrastructure projects and the call for commercial banks to boost lending. Still, the gauge remains down 17 per cent this year as the worst performer among the world’s major stock markets, as China’s trade war with the US escalates and a deleveraging move to cut corporate debts deepens.

“These measures will have an effect at last in the short term and can stabilise growth,” Gao said. “You don’t need to doubt about that. The market will have some upside room to run.”

The CSI 300 climbed 1.8 per cent to 3,326.65 at the close on Tuesday.

UBS has set a year-end target of 3,800 for the big caps gauge, and earnings growth for the companies on the measure are estimated to reach 5 per cent in the following 12 months, according to the Swiss bank.