UBS and Morgan Stanley have turned positive on Chinese equities, citing earnings recovery, AI momentum and China’s low sensitivity to oil price swings, as the Shanghai Composite climbs to an 11-year high.
Summary:
- UBS and Morgan Stanley have issued positive outlooks on Chinese equities, citing earnings recovery, improving liquidity and the growing appeal of AI, new energy and advanced manufacturing themes, according to strategy notes from both banks
- The Shanghai Composite has risen above 4,200 points, an 11-year high, while China’s economy grew 5% year-on-year in Q1, beating forecasts
- UBS equity strategists noted that China’s power sector relies on oil and gas for only around 3% of its needs versus a global average of nearly 20%, giving it a significant structural buffer against oil price volatility
- UBS said roadshows in North America and Europe this year revealed growing interest from sovereign wealth funds, pension funds and hedge funds, with many treating Chinese assets as a safe haven within global risk portfolios
- Morgan Stanley said China’s AI sector is transitioning from technological catch-up to commercial value realisation, and projected semiconductor self-sufficiency rising to 86% by 2030 from 41% last year
- The bank estimated AI could add around 3 percentage points to China’s total factor productivity over the next decade and lift GDP by approximately 3.5 points by 2035 relative to a no-AI baseline
Some of the world’s largest foreign financial institutions are turning more constructive on Chinese equities, with UBS and Morgan Stanley both issuing bullish strategy notes that point to earnings recovery, AI momentum and China’s structural insulation from oil price swings as the key drivers of a fresh investment case.
The shift comes as mainland markets demonstrate resilience that has surprised many observers. The Shanghai Composite has climbed above 4,200 points, reaching an 11-year high, even as the Iran war, elevated global oil prices and persistent trade and tariff disputes have unsettled markets elsewhere. China’s economy expanded 5% year-on-year in the first quarter, beating expectations, and the renminbi has remained broadly stable.
UBS China equity strategists identified the country’s limited exposure to oil and gas as a key structural advantage. China’s power sector draws only around 3% of its energy from oil and gas, compared with a global average of close to 20%, with coal and new energy making up the bulk of electricity supply. While China remains the world’s largest oil importer, Meng argued that relative to other major economies, it is far less sensitive to crude price fluctuations, giving it a meaningful buffer in an environment of elevated and volatile energy costs.
The macro policy backdrop is also drawing in long-term capital. UBS said this year’s institutional roadshows in North America and Europe revealed a notable pickup in interest from sovereign wealth funds, pension funds and hedge funds. Many of those investors, he said, are now treating Chinese assets as a relative safe haven within global risk portfolios, attracted by their low correlation to other markets and the perceived stability of China’s policy environment.
Morgan Stanley’s latest report signals a more specific thematic shift. Foreign institutional focus has moved on from the broad China recovery trade of recent years toward AI and technology sector upgrading. The bank characterised China’s AI industry as entering a new phase, transitioning from catching up technologically to generating commercial value. It projected domestic semiconductor self-sufficiency rising to 86% by 2030, up sharply from 41% last year, reducing AI deployment costs and strengthening supply chain resilience. Over a ten-year horizon, the bank estimated AI could add around 3 percentage points to total factor productivity and lift GDP by approximately 3.5 points by 2035 relative to a scenario without AI adoption.
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The bullish foreign institutional pivot toward Chinese equities carries direct implications for oil markets, given that China remains the world’s largest crude importer. UBS’s observation that China’s power sector relies on oil and gas for only around 3% of its needs, far below the global average of nearly 20%, is a structural constraint on the upside of any oil demand surge from Chinese growth. If AI-driven productivity gains lift Chinese GDP materially over the coming decade, as Morgan Stanley projects, the composition of that growth, weighted toward new energy and advanced manufacturing rather than energy-intensive heavy industry, may limit the traditional correlation between Chinese economic expansion and oil demand growth
