UBS: Hong Kong stocks continue to be bullish on large Chinese internet stocks, simulated portfolio newly includes JD.com-SW (09618) and Baidu-SW (09888).

UBS released a research report stating that since the outbreak of the Iran conflict, the MSCI China Index has outperformed the global index by about 1.4%, while A shares have shown more resilience, with the Shanghai and Shenzhen 300 Index remaining relatively stable. The bank believes that this further proves that the Chinese stock market provides feasible diversification options for global investors. From a fundamental perspective, the recent geopolitical events have posed relatively limited downside risks to the Chinese market, for reasons including: 1) China's low dependence on oil, accounting for only about 20% of total energy consumption; 2) having sufficient oil reserves (about 4 months or 1.3 billion barrels); 3) due to the government pricing mechanism, the rise in oil prices has not fully transferred to downstream customers; 4) higher input costs may drive up PPI and price expectations, which is actually beneficial in the current deflationary environment. In terms of market selection, the bank prefers A shares for reasons including: 1) potential government fund entry to provide downside support; 2) lower correlation with global indices compared to H shares and ADRs; 3) ample liquidity; 4) benefiting from policy support. Within A shares, the bank prefers sectors such as hardware technology, non-ferrous metals, internet, electrical equipment, securities, and stocks related to "going global". UBS believes that higher input costs are not necessarily a bad thing, as they may compress profit margins for companies, but have a relatively small negative impact on Chinese enterprises. Historically, PPI has been highly correlated with corporate income, with PPI increases (or narrowing decreases) often leading to faster income growth and forming a positive leverage effect on profits. In addition, multiple industries are seeking price increases, and rising oil prices may provide them with more momentum (such as the chemical industry). If investors believe that the Chinese economy can continue to enter an inflationary environment, stock prices may see upward potential. In A shares, the bank prefers sectors such as hardware technology, non-ferrous metals, internet, electrical equipment, securities, and stocks related to "going global". Regarding H shares, the bank continues to favor large internet companies and has added JD-SW (09618) and BIDU-SW (09888) to the model portfolio, citing their low holding ratios, not high valuations, and proactive shareholder return measures.