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UBS: Clear Increase in China's Fiscal Support Could Spur A-Shares Rebound; Semiconductor Equipment Top Tech Pick
2026-09-03 14:30:10 A report by the Chief Investment Office of UBS Wealth Management stated that if clear signals emerge in autumn showing stronger fiscal support policies in China, investor sentiment could improve and drive a new round of rebound in A-shares. More importantly, earnings growth momentum needs to strengthen further, which will be the key to supporting the next wave of catch-up rally. Recently released 2Q earnings reports further reinforced the bank's positive view on tech stocks. Due to its highly cyclical nature, China's semiconductor ecosystem has benefited the most under the K-shaped growth pattern, with leading companies recording strong revenue growth and margin expansion. Meanwhile, leading data center suppliers reported revenue growth of more than 50% YoY in 1H, while profit growth approached triple digits, indicating strong demand is driving simultaneous increases in sales and margins. In the bank's tech priority list, semiconductor equipment remains the top pick. Benefiting from domestic substitution, technological advancement, and continued investment in foundry and memory segments, such companies offer the highest earnings visibility. The bank is also positive on AI hardware companies with differentiated technological advantages, benefiting from data center demand and capable of maintaining pricing power. The internet sector ranks second on the bank's priority list, with large platform companies particularly favored. Benefiting from easing industry competition, resilient profitability in core businesses, continued cloud business growth and progress in AI monetization, such companies present the clearest risk-reward outlook. Recent tensions have escalated amid sanctions threats related to tech, overcapacity tariffs and Iran. Investors will closely watch the anticipated meeting between Chinese and US leaders expected at the end of September. Although the likelihood of a major breakthrough is low, the bank believes the meeting could reinforce the stabilization in bilateral relations following the May meeting. Potential outcomes may include extending temporary measures set to expire in November, reaching agreements on selected sectors, and commitments to maintain communication. Structural differences may be difficult to resolve in the short term, but the bank believes the potential meeting signals both sides still aim to maintain the existing framework of strategic stability, which remains mildly positive for markets. The latest earnings season for internet companies delivered mixed results, with more than half of companies meeting or exceeding expectations. Core business trends remained resilient, while AI-related workloads and enterprise demand accelerated cloud business growth, and improvements in utilization rates and product mix supported margins. However, market concerns over rising investments in AI and consumer services triggered a pullback. Currently, AI initiatives continue to advance and generate attractive returns, while valuations have retreated close to the low end of historical ranges. Beyond China tech stocks, the bank is positive on growth opportunities in power and electrical equipment, supported by grid investment, electrification, technological innovation and overseas market expansion. In healthcare, the bank favors CRO and CDMO companies due to higher earnings visibility. Selected biotech firms with differentiated product pipelines and strong out-licensing capabilities are also worth attention. Under China's low interest-rate environment, banks, insurers, selected utilities and consumer staples remain preferred options for stable cash flow and dividend yields.(sl/j)~ AASTOCKS Financial News Website: www.aastocks.com This article was automatically translated by AI, the Chinese version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. | |